DUTIES 

of  the 


JUNIOR  ACCOUNTANT 

^   ,       By 
W.  B.  REYNOLDS  and  F.  W.  TBORNTON 


Price  $1.00  net 


S\oji'l'$^diiioii 


Publkhed  by 

THE   ENDOWMENT   FUND 

of  the 

AMERICAN   INSTITUTE   OF  ACCOUNTANTS 
NEW  YORK,   1919 


Copyright,  1918-1919 
By  the  American  Institute  of  Accountants 


4- 


rHE  TEXT  of  the  "Duties  of  the  Junior 
Accountant'  consists  of  matter  which  ap- 
peared in  three  articles  in  The  Journal  of 
Accountancy  of  September,  October,  and  Novem- 
ber, J917,  and  additional  matter  supplied  later 
by  the  authors. 

The  copyright  of  the  book  has  been  donated 
by  the  authors  to  the  Endowment  Fund  of  the 
American  histitute  of  Accountants  and  under  that 
fund  the  hook  is  published  for  the  guidance  and 
assistance  of  the  younger  members  of  the  ac- 
counting profession. 


3 


TABLE  OF  CONTENTS 
Chapter  Page 

I     Auditor's  records 9 

Beginning  of  the  work     . 
II     Verification  of  bank  balances,  cash 

on  hand,  etc 17 

Checking  footings 31 

III     Misuse  of  adding  machines  and  lists     34. 


Checking  and  testing  postings 
Vouching  entries 


Accounts  carried  in  foreign  currency  50 

IV     Verification  of  securities        •      •      •  53 

V     Taking  trial  balances       .      .      .      .58 

Items  not  on  trial  balances  .       .       .61 

VI     Vouching   capital    assets    and    addl 

tlons  thereto 64 

Checking  Inventories       ....  69 

Making  schedules 73 

VII     Finishing  the  work 79 

Use  of  percentages  In  reports    .      .  80 
VIII     Liabilities  not  taken  up       ...  82 
Exhibits   (for  the  client)      ...  83 
IX     Conduct  of  juniors  In  clients'  offices  88 
Abuses  discovered  in  clients'  offices  89 
X     Checking  the  correctness  of  the  as- 
sistant's own  work     ....  92 
Utilizing  waiting  time   ....  93 
Systematic  check-marks         ...  93 

XI     Care  of  papers 97 

Care  of  clients'  books  and  records    .  99 


36 

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Duties  of  the  Junior  Accotihtarit 

CHAPTER  I 

This  series  of  articles,  written  In  response  to 
many  Inquiries  from  persons  who  arc  considering 
the  desirability  of  public  accounting  as  a  means 
of  livelihood,  or  who,  having  studied  therefor, 
are  about  to  commence  practical  work,  does  not 
aim  to  add  anything  to  the  sum  of  human  knowl- 
edge. Its  object  Is  to  set  forth  just  what  work 
is  expected  of  the  beginner  and  of  the  more  ex- 
perienced junior  accountant. 

Books  dealing  with  the  theory  of  accounts  and 
with  the  work  of  senior  accountants  are  suffi- 
ciently numerous.  The  teaching  in  colleges  and 
in  special  accounting  classes  Is  based  upon  the 
existing  literature  of  the  subject;  and  the  prod- 
uct of  the  colleges  and  classes  Is  frequently  bet- 
ter fitted  to  deal  with  the  problems  of  the  senior 
accountant  than  with  the  work  that  will  be  as- 
signed on  entering  the  practical  field. 

We  hope  to  set  forth  herein  the  drudgery,  and 
sometimes  the  pettiness,  that  is  inseparable  from 
accounting,  so  that  those  contemplating  taking 
up  the  work  may  do  so  with  open  eyes. 

Here  we  would  point  out  that  the  several  ex- 
aminations for  the  degree  of  C.P.A.  are  neces- 
7 


8    .  .I>X:[T.IE;S.Qf!THE^JirNIOR  ACCOUNTANT 

'sarliy'aAificiai;  Tri'tK'at! 'during  a  very  few  hours 
the  applicant  must  show  his  knowledge  of  those 
branches  of  accounting  that  demand  special  tech- 
nical training.  In  actual  work  the  accountant 
does  not  pass  in  rapid  succession  on  important 
matters  of  principle.  Such  matters  occur  only  at 
intervals — sandwiched  between  them  being  long 
periods  of  plain,  ordinary  hard  work. 

It  is  true  that  the  partners  of  great  firms,  and 
to  a  small  extent  supervising  accountants,  have 
to  deal  with  matters  of  principle  that  arise  in 
the  work  of  others,  but  even  in  these  cases  the 
matters  have  been  considered  by  juniors  who 
bring  together  such  facts  and  figures  as  will  clari- 
fy the  situation  and  enable  the  seniors  to  decide 
the  points  involved. 

In  the  practical  examination  for  the  C.P.A.  de- 
gree there  are  usually  five  or  six  difficult  deci- 
sions to  be  made  and  worked  out  within  as  many 
hours,  without  possibility  of  obtaining  additional 
information  as  to  circumstances.  It  is  probable 
that  if,  in  actual  business,  any  reputable  public 
accountant  were  asked  to  render  an  opinion  or 
give  a  certificate  upon  information  as  limited  and 
as  vague  as  that  contained  in  an  examination 
question,  he  would  decline  to  consider  it. 

The  person  contemplating  entry  into  the  pro- 
fession should  not,  therefore,  derive  his  impres- 
sions of  the  nature  of  the  work  to  be  done  from 


auditor's  records  9 

the  books  containing  the  questions  asked  at  these 
examinations  nor  from  the  periodicals  in  which 
such  questions  are  discussed  and  solved. 

Auditor's  Records 

It  is  a  matter  of  surprise  to  the  beginner  to 
find  that  auditors  keep  full  records  of  the  mat- 
ters on  which  they  are  engaged.  These  records 
are  usually  referred  to  as  "working  papers''  or 
"schedules." 

The  uses  of  these  schedules  are  many:  the 
work  of  the  junior  must  be  passed  upon  by  the 
senior,  and  again  by  a  partner  of  the  auditing 
firm,  and  the  working  papers  offer  the  only 
means  of  doing  this.  But  even  if  a  piece  of  work 
were  done  by  the  senior  partner  of  the  auditing 
firm  the  same  schedules  or  working  papers  would 
be  prepared,  because  they  enable  the  auditor  to 
back  up  the  matter  contained  in  his  report  even 
though  denied  further  access  to  the  books,  and 
also  furnish  a  starting  point  for  the  audit  of  the 
next  succeeding  period. 

It  happens  also  that  the  schedules  contain  fig- 
ures arranged  so  as  to  show  how  conclusions 
were  reached;  to  shov/  reasons  for  disagreements 
with  book  figures;  and  to  show  items  omitted 
from  the  books. 

It  is  not  unusual  for  auditors  to  examine  books 
against  the  will  of  the  custodian,  either  under  an 


10       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

order  of  court  or  at  the  instance  of  creditors, 
and  in  such  cases  it  is  quite  probable  that  a 
second  examination  might  be  denied,  leaving  the 
working  papers  as  the  only  available  record. 

Auditors  also  arrange  their  records  so  as  to  * 
show,  if  necessary,  the  nature,  age  and  cost  of 
the  items  of  fixed  asset  accounts.  In  making  these 
schedules  it  becomes  necessary  to  obtain  details 
from  invoices,  bills  of  sale  and  other  records 
which  are  not  carefully  filed  and  preserved  in  the 
office  of  the  client.  Then,  after  years,  it  fre- 
quently happens  that  necessity  arises  to  show  ex- 
actly what  the  assets  are,  and  any  auditor  who 
has  consistently  examined  the  books  would  be 
open  to  criticism  if  he  could  not  show  generally 
what  assets  should  be  in  existence. 

The  working  papers  also  serve  to  prevent  the 
client  from  altering  his  accounts  without  detec- 
tion after  audit,  since  the  balances  of  all  ac- 
counts— particularly  of  fixed  asset  and  capital 
liability  accounts  —  as  shown  on  the  auditor's 
papers  at  the  close  of  one  period  are  taken  up  as 
the  starting  point  for  the  next.  If  no  papers  were 
preserved  the  client  could  change  totals  of  aud- 
ited expense  and  fixed  asset  accounts  in  such  a 
way  as  to  falsify  his  apparent  financial  position. 

There  is  a  general  resemblance  in  the  papers  of 
most  good  auditors,  but  each  firm  has  some  pecu- 


BEGINNING   OF    THE    WORK  II 

llarities  of  its  own.  Some  file  correspondence  with 
working  papers,  while  others  keep  them  sepa- 
rately; some  arrange  schedules  to  agree  with  the 
trial  balance,  others  to  agree  with  the  balance- 
sheet  and  profit  and  loss  account.  The  junior 
should  ascertain  the  approved  method  of  the  firm 
he  works  for,  and  follow  it  exactly. 

These  records  are  prepared  in  part  during  the 
time  when  detailed  checking  is  proceeding,  and 
completed  after  the  checking  is  finished. 

Beginning  of  the  Work 

An  absolute  beginner  is  likely  to  be  assigned 
to  work  under  the  Immediate  supervision  of  an 
older  hand  until  he  has  considerable  familiarity 
with  actual  work  in  the  field.  No  embarrassment 
occurs  when  this  happens.  After  a  little  experi- 
ence, however,  he  is  likely  to  be  sent  out,  under 
the  general  direction  of  a  senior  who  will  not  be 
in  constant  attendance  on  the  work  and  may  not 
accompany  the  junior  at  its  beginning. 

When  this  occurs  the  assistant  should  ascertain 
whether  there  exists  a  programme  or  outline  of 
work  to  be  done ;  he  should  read  the  correspond- 
ence In  the  case,  and  should  look  carefully  over 
preceding  reports  if  any  have  been  made. 

Upon  introduction  at  the  office  of  the  client  the 
auditor  will  frequently  be  told  that  everything  is 
ready  and  asked,  "Where  do  you  want  to  begin?" 


I  2       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

This  is  a  natural  inquiry,  but  is  not  quite  so 
easily  answered  as  the  client  may  think.  The 
auditor  may  not  know  what  books  are  kept;  he 
rnay  not  know  anything  of  trade  requirements  or 
other  special  circumstances  affecting  the  manner 
of  keeping  the  accounts,  nor  the  general  customs 
of  the  office. 

If  at  this  point  the  auditor  asks  to  have  the 
general  outline  of  the  system  explained  fo  bim, 
especially  If  any  other  assistant  from  his  firm 
has  previously  audited  the  accounts,  he  may  be 
looked  on  by  the  client  as  an  incompetent;  if  he 
goes  ahead  blindly  he  will  probably  get  into 
trouble.    What  is  he  to  do  ? 

It  is  safe  in  all  cases  to  inquire  whether  all 
ledgers,  Including  subsidiary  ledgers,  are  bal- 
anced, and  to  ask  for  the  trial  balances.  This 
may  be  followed  by  an  Inquiry  as  to  which  of  the 
books  are  at  liberty,  and  the  time  of  the  day  at 
which  different  books  can  be  ha^  with  least  in- 
convenience to  the  client. 

A  glance  over  the  general  ledger  trial  bal- 
ance will  show  whether  there  are  any  notes  re- 
ceivable or  securities  to  examine,  and  this  being 
ascertained  the  auditor  m.ay  ask  to  take  up  the 
cashbook  and  general  ledger. 

With  the  cashbook  the  canceled  cheques  should 
be  obtained  and  quite  naturally  the  cash  count 
and  inspection  of  notes  and  securities  is  taken  up. 


BEGINNING   OF   THE    WORK  1 3 

Having  counted  cash,  checked  canceled 
cheques  to  cashbook,  and  verified  the  bank  bal- 
ance, the  auditor  may  proceed  to  check  the  post- 
ings from  the  cashbook  and  journal  to  the  gen- 
eral ledger.  By  the  time  all  these  things  have 
been  done  the  auditor,  if  at  all  competent, 
will  have  gathered  a  fairly  complete  knowledge 
of  the  system  and  will  feel  quite  confident  in  ask- 
ing for  such  other  books  as  the  accounts  show  to 
exist. 

Perhaps  there  are  three  or  four  juniors  on  the 
work,  for  all  of  whom  tasks  must  be  found  even 
before  the  assistant  in  charge  has  become  famil- 
iar with  the  system.  No  error  will  be  committed  - 
if  juniors  are  assigned  to  copy  and  check  the 
trial  balances  of  the  subsidiary  ledgers  in  the 
manner  to  be  described  later  herein.  If  neces- 
sary the  juniors  may  be  instructed  to  check  foot- 
ings and  postings,  or  to  make  tests  of  them,  in 
the  subsidiary  ledgers. 

If  the  course  outlined  be  followed  there  will 
be  no  waste  of  time  or  effort;  the  auditor  will 
lose  no  standing  in  the  eyes  of  the  client,  and  the 
client  will  not  be  annoyed  by  having  to  explain 
to  every  new  assistant  the  working  of  his  books. 

Generally  speaking,  auditing  firms  prefer  to 
make  frequent  changes  in  the  staff  assigned  to  the 
work  of  any  individual  client,  to  the  end  that  a 
variety  of  minds  shall  consider  the  situation  from 


14       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

time  to  time,  each  new  mind  throwing  light  upon 
it  from  a  different  angle. 

Clients,  on  the  other  hand,  generally  prefer  to 
have  the  same  assistant  at  each  examination, 
thinking  that  familiarity  with  the  books  will  save 
trouble  to  the  bookkeepers. 

Both  have  reason  for  their  attitude,  but  an 
assistant  who  follows  a  plan  similar  to  that  out- 
lined above  may  take  up  any  new  work  without 
unduly  bothering  the  bookkeepers.  After  a  few 
experiences  of  this  kind  the  auditor  will  find  that 
he  can  diagnose  a  set  of  books  without  conscious 
effort,  and  he  will  develop  the  "auditor's  in- 
stinct," which  is  a  valuable  asset. 

In  following  pages  the  auditor  is  urged  to  un- 
derstand and  remember  what  the  transactions 
are  that  are  represented  by  the  figures  he  is  check- 
ing. It  is  assumed  above  that  an  examination  of 
cashbook  entries  and  vouchers  and  of  the  gen- 
eral ledger  will  suffice  to  indicate  to  the  auditor 
what  the  other  books  of  the  system  are,  but  this 
assumption  is  justified  only  if  the  auditor  does 
look  behind  the  figures  at  the  transactions  they 
represent. 

Let  us  say,  for  example,  that  the  cashbook 
entries  are  set  up  in  several  columns,  one  of 
which  is  "accounts  payable,"  and  that  only  the 
total  of  that  column  shows  a  posting  page.  There 
is  probably  a  voucher  register  in  which  cash  pay- 


BEGINNING   OF   THE    WORK  1 5 

ments  are  posted,  and  no  creditors'  ledger,  be- 
cause If  there  were  a  creditors'  ledger  the  cash 
book  would  show  that  the  postings  had  been 
made  to  ledger  pages.  This  evidence  is  not 
wholly  conclusive,  however,  since  postings  to 
loose-leaved  creditors'  ledgers  are  sometimes  in- 
dicated m  the  cashbook  by  a  small  check-mark 
or  not  indicated  at  all.  Reference  to  the  general 
ledger,  however,  will  probably  show  whether  the 
accounts  payable  control  covers  a  ledger  or  only 
a  voucher  record. 

At  this  point  the  auditor  can  set  one  of  his 
assistants  to  take  off  the  list  of  unpaid  vouchers 
from  the  register,  agreeing  the  total  with  the 
control. 

Assume  further  that  the  "cash  receipts"  shows 
a  column  "cash  sales"  posted  (i)  by  dally 
totals;  (2)  monthly,  or  (3)  item  by  Item.  In 
case  (i)  there  Is  probably  a  cash  register  ma-' 
chine,  emptied  dally;  In  case  (2)  a  cash  sales 
book  separate  from  the  regular  sales  book,  and 
In  case  (3)  no  cash  sale  record  except  the  cash- 
book.  To  verify  this,  see  to  what  account  in  the 
general  ledger  the  Items  are  credited;  if  cred- 
ited directly  to  "sales"  there  probably  Is  no  cash 
sales  book;  If  credited  to  accounts  receivable,  or 
If  not  posted,  there  Is  probably  a  cash  sales  book. 
The  cases  where  the  cash  received  for  cash  sales 
Is  not  posted  are  where  a  cash  sales  book  is  kept. 


1 6       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

the  total  posted  to  credit  of  sales,  and  the  total 
of  the  cash  sales  column  in  the  cashbook  agreed 
with  the  total  of  the  cash  sales  book. 

Thus  almost  every  book  will  indicate  some- 
thing about  other  books  if  examined  intelligently, 
and  the  scrutiny  of  entries  to  gain  knowledge  of 
other  books  and  other  entires  leads  directly  to 
tlie  habit  of  considering  every  transaction  as  hav- 
ing two  sides.    You  see  one — what  is  the  other? 

Remembering  that  every  set  of  books  includes 
cashbook  and  general  ledgers,  and  that  cash 
accounts  may  always  be  taken  up  promptly,  you 
can  answer  the  question,  "Where  do  you  want 
to  begin?"  easily  and  confidently,  although  the 
books  be  strange  to  you. 

In  a  few  highly  specialized  lines  of  business — 
stock-brokers,  banks — this  procedure  would  fail; 
but  such  work  is  always  in  charge  of  experienced 
men  who  know  what  to  do.  Even  in  these  cases 
the  theory  does  not  fail,  and  it  is  only  because 
certain  special  work  must  be  done  with  the  great- 
est possible  dispatch  that  the  opening  work  is 
somewhat  different  to  that  discussed  above. 


CHAPTER  II 

Verification  of  Bank  Balances,  Cash  on 
Hand,  Etc. 

Among  the  first  duties  of  the  junior  account- 
ant will  be  the  verification  of  bank  and  cash  ac- 
counts. Much  misconception  exists  as  to  the  re- 
quirements of  the  case. 

It  is  necessary  that  all  bank  accounts,  cash  on 
hand,  cash  in  transit,  notes  receivable,  and  some- 
times negotiable  securities,  be  verified  on  the 
same  date.  This  is  necessary  because  if  one  bank 
be  verified  on  the  30th  day  of  June,  and  another 
on  July  1st,  the  auditor  cannot  always  tell 
whether  cash  was  withdrawn  on  July  ist  from 
bank  No.  i  (after  verification)  to  be  deposited 
in  bank  No.  2  (before  verification). 

Cash  on  hand  may,  similarly,  be  found  correct 
on  June  30th  and  may  be  deposited  in  bank  No. 
2  on  July  I  St;  notes  receivable  may  be  examined 
June  30th  and  then  discounted  at  bank  No.  2  on 
July  I  St;  or  they  may  have  been  pledged  for  a 
loan  to  make  good  shortage  of  cash  on  hand  on 
June  30th,  and  then,  after  verification  of  cash, 
may  have  been  redeemed  and  presented  to  the 
auditor  at  a  later  date. 

Upon  being  assigned  to  verify  cash  in  hand  in 
a  commercial  or  manufacturing  concern  the  audi- 
17 


l8       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

tor  should  first  examine  the  petty  cashbook, 
inking  in  small  red  figures  the  totals  as  he  finds 
them;  and  he  should  note  the  totals  on  his 
schedule,  with  balance  on  hand.  He  should  then 
count  the  cash,  checking  his  count  with  the 
cashier's  own  agreement  slips  if  such  exist.  If 
unentered  vouchers  are  presented  to  the  auditor 
as  part  of  the  cash  balance  he  should  examine  and 
list  them,  afterward  assuring  himself  that  they 
are  not  entered.  To  do  this  he  should  first  vouch 
the  entered  items,  stamping  the  vouchers  with  his 
audit  rubber  stamp.  There  should  remain  un- 
stamped vouchers  agreeing  with  those  which  the 
cashier  included  in  the  cash  balance. 

These  vouchers  may  include  memorandums  of 
indebtedness  by  employees — such  vouchers  can  be 
accepted  only  if  a  proper  explanation  be  given  for 
their  existence  and  approval  by  the  cashier's 
superior  officer  be  obtained.  If  they  consist  of  sec- 
ondary petty  cash  funds,  advances  for  traveling 
or  other  moneys  to  be  distributed  for  the  benefit 
of  the  firm,  it  is  necessary  only  to  ascertain  that 
the  advances  were  actually  made  and  w^re 
properly  authorized.  If,  however,  they  consii.:  of 
I.  O.  U.'s,  or  loans,  (advances  for  the  debtors 
benefit  only)  the  auditor  should  inquire  into  tie 
custom  of  the  firm  In  this  respect,  and  see  that  f  he 
heads  of  the  concern  are  familiar  with  the,  i  r- 
cumstances. 


VERIFICATION   OF   BANK   BALANCES         1 9 

The  auditor  will  examine  any  cheques  on  hand 
that  may  have  been  cashed  out  of  funds  In  the 
hands  of  the  cashier,  giving  special  attention  to 
the  names  of  the  makers  of  the  cheques,  dates 
and  location  of  the  banks  on  which  they  are 
drawn.  If  these  cheques  are  signed  by  the  cashier, 
they  do  not  differ  in  character  from  cashier's 
I.  O.  U.'s  and  are  ground  for  suspicion  that  the 
cashier  has  made  up  a  shortage  by  filing  his  own 
cheque.  Wherever  cheques  signed  by  the  cashier, 
or  any  ofEcer  or  employee  of  the  company,  are 
presented  as  part  of  the  cash  balance,  the  auditor 
should  endeavor  to  trace  them  to  final  payment 
through  the  bank. 

This  should  not  lead  the  auditor  into  pettiness. 
If  an  employee  owes  fifty  cents  because  he  could 
not  make  change,  it  is  not  necessary  to  see  the 
president  about  it.  The  auditor  must  use  some 
discretion.  Perhaps  there  is  a  bad  coin — if  there 
is,  the  auditor  may  tell  the  cashier,  but  it  does  not 
justify  any  faultfinding. 

The  auditor  should  recognize  that  cashiers, 
especially  if  unused  to  audit  examinations,  may 
be  sensitive;  and  care  should  be  taken  not  to 
adopt  the  attitude  of  a  detective. 

After  verifying  cash  on  hand,  the  auditor 
should  not  lose  track  of  the  little  red  figures 
which  he  noted  on  the  petty  cashbook  until  he 
has  vouched  the  petty  cash,  both  as  to  receipts 


20       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

and  disbursements  up  to  the  date  of  the  count, 
and  checked  it  to  the  ledger  or  general  cashbook 
as  the  case  may  be.  He  should,  before  finishing 
his  schedule,  see  that  it  agrees  with  the  balance 
of  petty  cash  as  shown  by  the  books  at  the  date 
of  audit.  Such  an  agreement  may  take  the  fol- 
lowing form: 


THE  STEEL  MANUFACTURING  COMPANY 


Cash 


Audit  September  30,  1916 
September  30,     Balance        $142.16 


Counted  October  13,  1916 
9:30  A.  M.     October  3    Petty  cashbook— Dr.  $1,863.41 
3         "  "        — Cr.        222.34 


Balance 

$1,641.07 

Count: 

Currency  notes                           $1,200.00 

Cheque— Standard  Oil  N.  J.        220.00 

Vouchers                                             63.80 

Advances:                                                    8 

cents  short 

To  trayelers                                 35.00 

Coin                                                122.19 

$1,640.99 

Ledger  balance,  September  30th 

$   142.16 

Receipts— to  October  13,  1916 

1,721-25 

$1,863.41 

Payments  to  October  13,  1916 

222.34 

Balance  October  13th,  as  above 

$1,641.07 

VERIFICATION    OF    BANK   BALANCES         21 

Such  a  shortage  as  that  shown  above  should 
not  be  criticized,  since  the  most  careful  cashier 
may  have  such  a  difference  if  his  accounts  be 
veriHed  without  notice. 

The  balance  at  the  date  of  audit,  If  It  be  not 
the  same  date  as  the  cash  count,  should  be  com- 
pared with  the  ledger. 

Note  that  the  receipts  ($1,721.25)  between 
September  30th  and  October  13th  are  probably 
amounts  withdrawn  from  the  bank,  and  that  un- 
less the  bank  account  Is  agreed  at  October  13th 
the  auditor  does  not  know  how  much  cash 
should  have  been  taken  up  as  receipts. 

After  agreeing  petty  cash  the  auditor  may  take 
up  the  bank  accounts.  If  the  accounts  are  con- 
sistently audited  at  short  intervals  the  last  agree- 
ment of  the  account  Is  to  be  taken  as  the  starting 
point. 

The  canceled  cheques  are  obtained  and  com- 
pared one  by  one  first  with  the  list  of  outstand- 
ing cheques  at  the  last  audit  and  then  with  sub- 
sequent cashbook  entries.  As  the  entry  of  each 
cheque  In  the  cashbook  Is  agreed  with  the  can- 
celed cheque  the  auditor  should  stamp  the  cheque 
with  his  rubber  stamp  and  make  on  the  cashbook 
a  checkmark  to  indicate  that  the  cheque  has  been 
inspected.  The  inspection  of  the  cheque  is  to 
include  ( i)  agreement  of  amount  and  of  payee's 
name  w^ith  cashbook  entry,  (2)  Inspection  of  sig- 


22       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

nature,  (3)  verification  of  the  fact  that  the 
cheque  has  passed  through  the  bank.  It  Is  also 
desirable  that  the  later  cheques  be  scrutinized  to 
see  that  they  were  passed  through  the  bank  prior 
to  the  date  of  the  bank  certificate. 

When  the  auditor  commences  to  verify  the 
bank  accounts  It  may  happen  that  the  last  batch 
of  canceled  cheques  has  not  yet  been  received 
from  the  bank — indeed,  If  the  work  be  taken  up 
promptly  on  commencing  the  audit  it  Is  Inevitable 
that  a  few  days  will  elapse  before  the  bank  re- 
turns canceled  cheques  up  to  the  date  when  the 
audit  begins.  In  such  cases  the  auditor  will  check 
canceled  cheques  to  the  books  up  to  the  point 
at  which  the  bank  last  balanced  the  account.  He 
should,  before  returning  the  books  to  the  cashier, 
take  off  a  list  of  cheques  outstanding  at  that 
point,  using  this  list  when  the  last  batch  of  can- 
celed cheques  is  returned.  If  this  be  not  done  the 
cashier  may  imitate  the  auditor's  checkmark, 
placing  it  against  entries  of  cheques  that  have  not 
been  paid  or  that  have  been  paid  to  improper 
payees. 

In  making  the  bank  agreement  the  auditor 
should  ask  for  the  cashier's  agreement,  which  will 
assist  in  the  work;  but  the  cashier's  agreement 
must  not  be  used  for  any  purpose  except  to  check 
the  successive  steps  taken  by  the  auditor  in  mak- 
ing his  own  agreement. 


VERIFICATION    OF   BANK   BALANCES         23 

It  is  usual  for  banks  to  furnish,  on  request, 
certificates  showing  the  balance  to  the  credit  of 
the  depositor.  Such  requests  must  be  signed  by 
the  depositor  or  his  agent,  but  should  be  mailed 
by  the  auditor  personally,  and  the  bank's  certifi- 
cate should  be  mailed  direct  to  the  auditor. 

When  completed,  a  bank  agreement  may  ap- 
pear as  follows: 

Bank  September  30,  1916 


Balance  per  cashbook  and  ledger  Septem- 
ber 30,   19 16  $26,000.05 
Receipts— September  30th  to  October  13th      116,200.00 

$142,200.05 

Payments— September  30th  to  October  13th        89,000.00 

Balance  October  13,   1916  $  53.200.05 

Cheques  outstanding  October  13,  1916: 
No.  1863  $  2,600.00 

1 912  80.00 

1913  333-33 

1914  250.00 

1915  1 16.81 
$  3,380.14 

Cashbook  balance  53,200.05 

$56,580.19 
Interest  to  September  30,  1916, 

not   credited  on  books  3S0.00 

$56,96619 
Bank  charges,  not  yet  taken 

up  3-10 

$56,903.09  Bank  certificate, 
October  13,  1916 


24       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

In  addition  to  vouching  the  payments  with 
canceled  cheques  the  auditor  should  compare  de- 
posits with  cashbook  receipts.  The  reasons  for 
this  are  many;  the  cashier  may  be  withholding 
temporarily  funds  that  should  be  deposited,  using 
the  funds  for  speculation  for  his  own  profit;  the 
account  may  be  short,  and  the  cashier  may  have 
borrowed  money  to  bring  the  balance  up  to  the 
proper  amount  at  the  date  of  audit;  the  cashier 
may  have  deposited  receipts  of  the  last  few  days 
without  entering  them  as  receipts  in  the  cashbook, 
thereby  making  good  for  the  time  being  an  ex- 
isting shortage. 

When  checking  deposits  with  receipts  the  pro- 
cedure will  depend  partly  upon  the  form  of 
books.  If  the  cashbook  have  a  column  showing 
separately  the  individual  deposits,  and  if  this 
column  can  be  footed  and  agreed  with  the  total 
receipts,  it  is  necessary  only  to  check  bankbook 
deposit  entries  with  corresponding  cashbook  en- 
tries, observing  that  the  total  for  each  day  cor- 
responds with  the  receipts  for  that  day. 

Deposits  are  usually  made  daily.  If  no  de- 
posit column  exist  in  the  cashbook  it  may  be  nec- 
essary to  foot  each  day's  receipts  separately,  and 
compare  with  the  corresponding  bank  deposit. 

The  deposits  of  the  last  few  days  must  be  spe- 
cially scrutinized  and  agreed  with  cash  receipts 
shown  by  the  cashbook.    This  is  necessary  to  pre- 


VERIFICATION    OF   BANK   BALANCES         2$ 

vent  kiting  of  cheques  and  to  detect  deposits  hur- 
riedly made  to  cover  previously  existing  shortage. 

Auditors  should  never  count  cash  on  hand  nor 
have  the  bank  account  balanced  during  banking 
hours.  Bank  certificates  should  be  "at  close  of 
business"  on  the  day  selected  for  verification,  the 
cash  on  hand  being  counted  either  after  banking 
hours  on  that  day  or  before  the  opening  of  bank- 
ing business  on  the  next  day. 

When  cash  is  verified  notes  receivable  should 
be  examined  and  listed  simultaneously.  These 
notes  should  be  considered  in  the  same  way  as 
cash  on  hand. 

The  notes  should  be  listed  thus : 

No.  Name  of  drawer.  Date.  Due  date.  J  mount. 

After  listing  the  notes  the  list  should  be  com- 
pared with  the  ledger,  to  ascertain  that  the  notes 
were  duly  debited  to  the  notes  receivable  account, 
and  that  they  have  not  been  paid.  The  existence 
of  a  note  does  not  necessarily  prove  that  a  firm 
can  properly  take  It  up  as  an  asset.  Frequently 
old  worthless  notes  exist,  which  have  been  writ- 
ten off.  Clerks  can  fabricate  notes  which  audi- 
tors cannot  distinguish  from  genuine  notes.  But 
if  the  books  show  such  notes  to  have  been  re- 
ceived In  the  usual  course  of  business,  and  cred- 
ited to  what  appear  to  be  genuine  customers'  ac- 
counts, the  auditor  Is  justified  in  taking  them  up 


26       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

as  assets.  This  Is  especially  true  where  the  cus- 
tomers' accounts  show  notes  to  have  been  given 
previously,  and  to  have  been  met  at  maturity. 

The  note  schedule  must  be  agreed  with  the 
ledger  balance  at  the  nominal  date  of  audit.  This 
agreement  may  take  the  following  form : 

Notes  Receivable 
Balance  September  30,  1916  $20,000.00 

Paid  since,  to  October  13th: 
No.   8—  $2,000.00 
"    13 —    2,000.00  4,000.00 


$16,000.00 


Notes  received  since,  to  October  13th: 

No.  263  1,000.00 


Balance  October  13th,  per  list  $17,000.00 


Against  the  entries  on  the  auditor's  schedule 
the  word  "examined"  should  be  written  as  the 
notes  are  inspected. 

The  auditor  should  not  only  list  overdue  notes 
but  in  cases  where  a  series  of  notes  is  given,  a 
part  of  which  has  matured,  he  should  ascertain 
that  the  matured  notes  have  been  met.  If  they 
have  not  been  met,  it  is  fair  to  presume  that  sub- 
sequent notes,  even  although  they  are  not  over- 
due at  the  date  of  audit,  are  of  doubtful  value. 

To  summarize  this  part  of  the  work,  the  audi- 
tor should: 


VERIFICATION   OF   BANK   BALANCES         27 

I — After  banking  hours  of  the  day  upon  which 
the  bank  verification  is  to  be  made  or  be- 
fore banking  hours  of  the  following  day, 
/.^  Count  cash  on  hand 
^  List  unentered  vouchers 

Ink  in  petty  cashbook  the  debit  and  cred- 
it footings 
Make  schedule,  reconciling  with  balance 
at  nominal  date  of  audit,  as  shown  by 
ledger 
Inspect  notes  receivable 
2 — Send  to  banks  applications   for  certificates, 
having  the  bank  accounts  balanced  and  can- 
celed cheques  returned.     Mail  the  appli- 
cations himself.     Have  the  certificate  sent 
direct  to  the  auditor. 
3 — Check  canceled  cheques  to  cashbook  entries 
(sometimes  it  is   advisable  to   check  the 
chequebook  stubs,  and  compare  stubs  with 
cashbook. ) 
List  outstanding  unpaid  cheques. 
Reconcile  cashbook  balance  with  bank's  state- 
ment. 
Compare  deposits  with  cashbook  receipts,  not 
with  lists  of  deposits  in  chequebook  stubs. 
4 — Having  prepared  schedules  during  this  work, 
if  any  discrepancies  appear  take  them  up 
first  with  your  senior  accountant.     If  you 
are  in  charge  of  the  work,  ask  for  explana- 


2  8        DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

tlon  from  the  employee  concerned,  unless 
you  have  reason  to  suspect  dishonesty.  In 
the  latter  case,  if  you  cannot  consult  a 
senior,  take  the  matter  up  y/ith  the  head 
of  the  office  in  which  you  are  working, 
carefully  avoiding  any  direct  suggestion  of 
dishonesty.  While  thus  avoiding  offense 
to  clients,  do  not  accept  any  explanation 
that  is  not  absolutely  convincing. 

Certain  special  features  of  cash  verifications 
should  be  considered  here. 

Among  the  items  "cash  on  hand"  may  be 
cheques  which  have  been  cashed  out  of  funds  on 
hand.  These  cheques  may  be  signed  by  employees 
or  officers  of  the  company,  in  which  case  they  do 
not  greatly  differ  from  I.  O.  U.'s;  they  may  be 
of  old  dating;  and  the  auditor  should  take  care 
to  pass  no  undeposited  cheques  without  ascertain- 
ing and  recording  their  true  character. 

Where  cash  sales  are  made  the  amount  of  cash 
sales  not  yet  entered,  (which  may  usually  be  ob- 
tained from  a  cash  register)  should  be  added  to 
the  cash  shown  by  the  regular  cashbooks.  There 
may  also  be  unclaimed  wages  on  hand,  in  which 
case  the  auditor  should  verify  the  amount.  He 
should  inquire  into  the  method  of  handling  un- 
claimed wages,  and  report  to  his  senior  any 
looseness  In  this  respect. 


VERIFICATION   OF    BANK   BALANCES         29 

Where  country  banks  are  concerned,  the  hours 
at  which  cash  and  bank  verifications  can  be  made 
differ  from  those  which  can  be  used  in  case  of 
city  banks.  Many  country  banks  keep  long 
hours,  sometimes  remaining  open  for  business 
until  5  130  P.  M.,  but  these  banks  frequently  con- 
sider the  "close  of  business"  to  be  the  hour  at 
which  cheques  received  from  other  banks  are 
cleared.  Where  these  banks  are  involved  it  is 
especially  necessary  for  the  auditor  to  see  that  all 
deposits  credited  during  the  last  few  days  are 
the  same  as  the  amounts  received  through  the 
cashbook.  If  this  be  not  done,  a  shortage  may 
be  covered  by  a  deposit  in  one  bank  of  a  cheque 
drawn  on  another  but  not  recorded  on  the  books. 

Where  receipts  of  one  day  do  not  come  into 
the  cashier's  hands  until  next  day,  so  that  re- 
ceipts of  the  last  day  of  the  month  are  not  de- 
posited until  the  first  day  of  the  next  month,  a 
verification  made  at  a  later  date  is  defective,  even 
though  there  be  no  other  cash  on  hand  at  the  end 
of  the  month.  The  best  possible  verification  can 
be  had  only  when  there  is  no  cash  on  hand  un- 
counted; but  occasionally  it  is  necessary,  in  the 
circumstances  referred  to  above,  to  accept  a  veri- 
fication of  bank  and  cash  as  of  a  given  date,  and 
to  add  subsequent  receipts  in  transit  at  the  time 
of  the  cash  count.  In  such  cases  special  care  is 
to  be  exercised  in  agreeing  daily  deposits  for  a 


30       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

few  days  before  and  after  the  date  of  the  verifi- 
cation with  cash  receipts  as  shown  by  the  cash- 
book. 

Where  notes  receivable  exist  it  may  happen 
that  some  of  them  have  been  lodged  with  banks 
for  collection.  The  usual  practice  is  to  lodge 
with  the  bank  at  the  end  of  the  month  all  notes 
falling  due  during  the  next  month.  Banks  al- 
most always  acknowledge  these  deposits  of  notes, 
and  If  the  total  amount  be  comparatively  small 
an  inspection  of  the  bank's  receipts  for  the  notes 
should  sufHce.  As  the  notes  might  possibly  be 
withdrawn  from  banks  before  maturity  and  sold 
or  pledged  for  loans,  it  is  preferable,  where  the 
amount  of  the  notes  is  large,  to  obtain  from  the 
banks  an  acknowledgment,  as  of  the  same  date  as 
the  bank  verification,  of  the  notes  held  for  col- 
lection. 

Some  notes  are  secured  by  deposit  of  collat- 
eral. If  the  notes  so  state,  the  collateral  should 
be  Inspected.  If,  however,  the  notes  do  not  spe- 
cify that  collateral  has  been  deposited  the  audi- 
tor Is  dependent  upon  such  information  as  the 
client  may  choose  to  give,  and  should. certify  only 
that  certain  specified  collateral  was  seen,  and  not 
that  all  collateral  deposited  was  inspected. 

Auditors  should  ascertain  when  they  verify 
notes  receivable  and  cash  whether  any  accounts 
or  notes  have  been  pledged  for  loans  and  should 


CHECKING    FOOTINGS  3 1 

ask  if  any  inventory  or  other  assets  have  been 
pledged.  It  is  not  always  possible  for  the  audi- 
tor to  ascertain  these  facts  positively,  but  he  can 
usually  find  out  whether  it  has  been  the  custom  of 
the  company  to  pledge  any  assets.  He  will  be 
influenced  to  some  extent  by  the  customs  of  the 
client  with  respect  to  making  bank  loans.  Some 
advances,  however,  are  made  against  accounts  re- 
ceivable, the  pledged  account  remaining  for  busi- 
ness reasons  in  the  name  and  custody  of  the 
pledger,  who  is  under  an  obligation  to  report  and 
pay  collections  immediately  to  the  pledgee. 

Checking  Footings 

Checking  footings  is  perhaps  the  most  irksome 
of  all  the  work  that  falls  to  the  lot  of  young  ac- 
countants. There  is  no  mystery  about  the  foot- 
ing of  a  single  column  of  figures.  The  work  ex- 
pected of  an  auditor  is  not  limited,  however,  to  a 
single  footing. 

Frequently  cashbooks,  journals  and  some  other 
books  of  original  entry  are  of  the  columnar  form, 
some  items  being  posted  from  the  totals  of  col- 
umns and  some  in  detail  from  a  sundries  column. 
The  sundries  column  may  be  analyzed  and  the 
postings  made  from  the  analysis.  In  all  such 
cases  the  auditor  should  check  the  footings,  not 
only  of  the  columns  but  of  the  analysis,  the  sun- 
dries column  and  summaries  from  which  postings 


32       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

are  made.  It  is  necessary  to  see  that  the  totals 
of  the  items  contained  in  the  columns  footed 
agree  with  the  amounts  posted  either  directly  or 
through  a  summary. 

A  cashbook  or  other  book  may  be  in  the  form 
below: 

LF     A  B 


Cash  payment3 

Douglas  Robinson 

Taxes 

226  ^ 

>I20.00 

Insurance 

242 

68.00 

330 

220.00 

$408.00 

Carstein  &  Co. 

Commission 

330 

62.00 

Brown,  Green  &  Co. 

.  Books 

24.00 

Blank  forms 

10.00 

Envelopes 

63 

6.00      40.00 

Carried  forward 

$510.00 

In  this  case  only  column  B  is  footed.  But  in 
the  entry  shown  "Douglas  Robinson"  the  details 
in  column  A  are  separately  posted.  It  becomes 
necessary  to  check  the  footing  of  the  three  items 
making  up  the  $408.00,  as  an  error  would  throw 
the  accounts  out  of  balance.  The  figure  $408.00 
is  the  amount  of  the  cheque  paid,  and  is  verified 
with  the  canceled  cheque;  hence  an  error  would 
probably  occur  in  stating  the  amount  of  one  of 
the  items  in  column  A — these  being  separately 
posted. 

Upon  verifying  a  footing  the  auditor  should 
place  under  the  verified  total  his  own  personal 
check-mark^ — but  if  the  total  is  in  pencil  no  check- 


CHECKING    FOOTINGS  33 

mark  should  appear  until  the  figures  have  been 
inked  in,  he  keeping  a  memorandum  of  the  totals 
in  the  meantime. 

In  making  verification  of  ledger  footings  of 
open  unbalanced  accounts,  especially  personal  ac- 
counts, it  is  customary  for  the  auditor  to  note  in 
very  small,  neat,  red  figures  the  total  up  to  the 
point  verified.  It  is  sometimes  possible  to  write 
these  figures  in  the  money  column,  close  under  the 
last  line  of  figures  included  in  the  total;  in  other 
cases  it  is  necessary  to  put  these  figures  in  the 
margin.  Where  customers'  accounts  have  many 
items  and  payments  are  made  from  time  to  time 
liquidating  only  a  part  of  the  items  it  becomes 
improper  to  ink  in  these  red  figures  in  the  money 
column,  since  upon  payment  of  some  of  the 
earlier  items  the  paid  items  may  be  balanced  and 
ruled  off  at  that  point,  and  the  red  ink  figures  at 
the  end  are  no  longer  correct. 


CHAPTER  III 

Misuse  of  Adding  Machines  and  Lists 

Ability  to  use  an  adding  machine  skilfully  is 
valuable  to  the  auditor.  Long  lists  of  unpaid 
vouchers,  taken  from  the  voucher  record,  in  or- 
der to  agree  unpaid  items  with  the  general  ledger 
control,  may  be  handled  in  this  way  if  there  is  no 
necessity  for  a  permanent  list  of  creditors. 

Machine  lists  of  accounts  payable  and  receiv- 
able are  often  furnished  by  the  client  to  the  audi- 
tor in  order  that  the  latter  may  verify  the  items, 
accepting  the  adding  machine  total.  It  is  true 
that  the  machine  does  not  err;  but  even  though 
the  items  be  verified  the  auditor  must  not  accept 
the  total  without  verification. 

If  there  be  anything  wrong  and  the  bookkeeper 
wishes  to  conceal  it  he  can  easily  manipulate  the 
adding  machine  so  as  to  show  on  the  printed  list 
any  total  that  he  wishes.  If  it  be  desired  to  in- 
crease the  total  the  operator  can  first  depress  the 
keys  showing  the  amount  by  which  he  wishes  to 
falsify  the  total,  print,  then  turn  the  ribbon  for- 
ward, tear  it  off,  and  start  the  list,  leaving  the 
falsification  standing  on  the  machine;  or  the  car- 
riage may  be  thrown  back  while  the  falsified  fig- 
ures are  put  on  the  machine  without  printing  the 
amount. 

34 


MISUSE   OF   ADDING   MACHINES  35 

Constant  use  of  the  adding  machine  for  small 
additions  is  to  be  avoided;  and  a  competent  audi- 
tor, if  he  has  to  list  items  and  describe  them,  can 
then  add  them  more  rapidly  than  he  can  again 
list  them  on  the  machine.  Further,  unless  he 
calls  back  the  machine  list  it  is  not  certain  that  he 
has  listed  the  items  just  as  he  has  written  them. 

Finally,  adding  machine  lists  are  quite  unfit  to 
form  part  of  the  regular  working  papers.  Occa- 
sionally such  a  list  may  be  worth  preserving,  in 
which  case  it  should  be  pasted  in  strips  on  an 
ordinary  sheet  of  working  paper.  If  pinned  to 
the  working  papers  it  is  likely  to  become  torn 
and  lost,  and  is  troublesome  in  any  case. 

As  a  rule  the  progress  of  the  auditor  in  experi- 
ence is  marked  by  diminishing  use  of  the  adding 
machine,  and  diminished  use  of  the  adding  ma- 
chine will  hasten  the  progress  of  the  auditor.  It 
is  as  a  means  of  obtaining  correct  totals  with 
comparatively  inexpert  help  that  the  machine  has 
its  greatest  use. 

One  of  the  most  serious  objections  to  the  use 
of  the  adding  machine  to  total  items  contained  in 
the  working  papers  is  that  the  machine  does  not 
add  what  is  on  those  papers,  but  does  add  the 
figures  registered  by  depressing  the  keys.  An 
omission  of  an  item  from  the  schedules  may  thus 
be  overlooked,  unless  the  items  are  compared 
after  listing. 


36       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

It  should  be  understood  that  this  criticism  of 
the  indiscriminate  use  of  the  machine  applies 
mainly  to  the  substitution  of  adding  machine 
records  for  hand-written  schedules  In  the  work- 
ing papers.  Under  suitable  conditions  the  adding 
machine  Is  not  only  useful,  but  is  a  necessary  part 
of  the  equipment  of  any  office. 

Checking  and  Testing  Postings 

Checking  postings  Is  not  to  be  considered  as 
consisting  of  a  comparison  of  the  amounts  set 
opposite  certain  posting  pages  in  the  books  of 
original  entry  and  the  corresponding  pages  of 
the  ledger. 

It  Is  required  that  those  making  the  check  as- 
certain: 

(i)  that  all  entries  in  the  book  of  original 

entry  are  carried,  In  detail  or  in  total, 

both  to  the  debit  and  credit  side  of 

some  account  in  the  general  ledger; 

'(2)  that  all  entries  are  posted  to  the  proper 

accounts ; 
(3)    and  that  all  entries  are  fully  understood. 

In  respect  of  the  first-named  requirement  rt  is 
necessary  that  the  assistant  who  is  calling  post- 
ings from  books  of  original  entry  should  call  not 


CHECKING   AND   TESTING   POSTINGS         37 

alone  those  items  that  have  a  posting  page  set  op- 
posite to  them,  but  all  items.  He  should,  before 
concluding  that  the  postings  on  a  given  page  are 
complete,  run  over  every  Item  in  the  money  col- 
umns, looking  to  see  that  it  is  posted  and  checked. 
Modern  books  of  original  entry  are  usually 
provided  with  columns  for  the  purpose  of  group- 
ing items  of  similar  character  so  that  they  may 
be  posted  in  total.  A  voucher  record,  for  instance, 
may  contain  entries  similar  to  the  following: 


Sundries 

*f8o.oo 

t400.0O 


..>  f- 

'  ■  ^  ■ 

Vou. 

\ 

"  Total 

Office 

Mate- 

No. 

Name 

LF 

amount 

expense 

rials 

Repairs 

LF 

Allen  &  Co. 

33 

I186.20 

f8o.20 

|i26.00 

— 

74 

Wilson  &  Co. 

139 

2,1X0.00 

— 

1,780.00 

— 

94 

Jones,  J.J. 

226 

16.22 

— 

— 

$16,22 

Bear  Spring 

64 

6.00 

6.00 

Jackson  Co. 

22 

229.80 

28.00 

200.00 
|2,OC-6.00 

1.80 

— 

$2  618,22 

$114.20 

$1802 

322 

118 

244 

266 

I480.00 


•Plant    t  Machinery 

The  above  shows  that  a  creditor's  ledger  is 
kept,  the  posting  pages  being  those  in  the  first 
column  marked  LF;  that  this  ledger  is  repre- 
sented in  the  general  ledger  by  a  controlling  ac- 
count on  page  322;  and  that  the  general  ledger 
contains  accounts  for  office  expense,  materials,  re- 
pairs, plant  and  machinery  on  pages  118,  244, 
266,  74  and  94  respectively. 

The  check  of  general  ledger  posting  should  be 
such  as  to  prove  that  all  items  have  been  posted 
to  both  debit  and  credit  accounts  in  the  general 


38       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

ledger.  Obviously  all  the  Items  are  included  in 
the  total,  $2,6x8.22,  posted  to  the  credit  of 
"creditors'  ledger."  The  debits  on  pages  ii8, 
244  and  266  are  clear  enough.  The  auditor  must 
see  that  all  the  items  in  "sundries"  column  are 
posted  separately  to  the  general  ledger,  and  that 
the  items  included  in  the  totals  of  the  other  dis- 
tribution columns  are  not  posted  separately. 

If  the  voucher  record  runs  many  pages  between 
monthly  totals,  and  if  there  are  many  items  In 
the  sundries  column,  the  inexperienced  junior  may 
overlook  the  posting  of  the  totals  or  the  agree- 
ment of  the  totals  posted  to  the  debit  side  of  the 
ledger  with  the  total  posted  to  the  credit  side. 
This  should  be  looked  to — it  is  important. 

It  has  been  stated  that  the  auditor  must  under- 
stand the  entries.  When  an  item  has  been  posted 
to  a  given  account  the  auditor  has  not  properly 
checked  it  unless  he  knows  the  nature  of  the 
account  to  which  the  item  has  been  posted  and 
the  nature  of  the  item.  After  the  checking  is 
done  the  auditor  should  be  prepared  to  stand  an 
examination  as  to  the  nature  of  every  account  in 
the  ledger.  If  he  could  not  pass  such  an  exam- 
ination, how  could  he  tell  that  items  were  prop- 
erly posted?  Few  juniors,  however,  are  able  to 
state  for  every  Item  in  their  trial  balances  the 
exact  nature  of  the  account  represented. 


CHECKING   AND   TESTING   POSTINGS         39 

Do  not  fall  into  the  habit,  when  calling  post- 
ings, of  looking  only  for  the  posting  page  in  locat- 
ing items.  The  page  is  frequently  the  most  promi- 
nent mark  by  which  to  find  items,  but  you  should 
never  forget  to  see  that  the  item  really  belongs 
on  the  page  to  which  it  is  posted. 

The  procedure  best  adopted  to  economize  time 
is  for  the  assistant  who  has  the  book  of  original 
entry  to  call  the  first  ledger  page  occurring  in  his 
book.  The  second  assistant  finds  and  checks  the 
item  in  the  ledger.  If  the  ledger  account  has  very 
many  items  from  the  same  book  of  entry  the 
ledger  assistant  may  call  the  items  to  the  assistant 
having  the  book  of  original  entry  until  that  ledger 
page  is  cleared.  The  first  assistant  then  goes 
back  to  the  beginning  of  his  book  and  calls  the 
next  ledger  page.  Where  ledger  accounts  have 
but  few  entries  it  is  waste  of  time  and  effort  to 
try  to  clear  them  at  once;  and  the  first  assistant 
should  continue  to  call  postings  in  rotation  so  as 
to  clear  the  book  of  original  entry  until  another 
ledger  account  of  many  items  is  reached. 

Check-marks  for  postings  in  every  case  should 
be  made  close  to  the  "posting  folio"  or  posting 
mark  made  by  the  bookkeeper  when  the  items  are 
first  posted.  Do  not  make  the  check-marks  in 
such  a  way  that  they  can  be  mistaken  for  marks 
made  with  a  different  object. 


40       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

If  an  item  occurs  with  a  wrong  folio  or  with- 
out a  folio  do  not  imagine  that  because  it  is  one 
item  out  of  a  thousand  it  may  be  passed — that 
item  is  the  very  one  that  you  should  check. 

In  the  worst  books  you  will  find  99%  of  the 
items  correct — you  are  after  the  1%  remaining. 

In  testing  postings  no  object  is  served  by  check- 
ing to  the  ledger  indiscriminately  some  of  the  en- 
tries in  other  books. 

The  auditor  should,  in  making  a  test,  select  a 
section  of  the  book  of  original  entry  and  see  that 
every  item  in  it,  without  any  exception  whatever, 
is  properly  posted.  He  should  then  select  a  sec- 
tion of  the  ledger  or  certain  accounts  in  the  ledger 
and  see  that  every  item  in  them  is  in  agreement 
with  the  books  of  original  entry.  In  this  way  he 
will  obtain  evidence  to  show  that  all  items  in  the 
books  of  original  entry  are  posted  to  the  ledger, 
and  that  all  entries  in  the  ledger  are  obtained 
from  the  books  of  original  entry.  That  is  what 
he  wants  to  know. 

It  is  of  no  value,  however,  to  know  that  some 
items  in  one  book  agree  with  some  items  In  an- 
other.   No  one  ever  doubted  that. 

When  a  senior  instructs  a  junior  to  check  post- 
ings, say  of  the  journal  to  the  general  ledger,  he 
usually  arranges  for  two  assistants  to  work  to- 
gether. They  may  often  have  to  do  this  work 
for   several  days   without  intermission.     They 


CHECKING   AND  TESTING   POSTINGS         4 1 

should  sit  SO  that  their  voices  are  clearly  heard 
one  by  the  other  without  effort.  Loud  calling 
of  postings  is  not  only  extremely  fatiguing  to  the 
throat  if  long  continued,  but  offensive  to  the 
other  occupants  of  the  office.  The  two  assistants 
should  change  places  from  time  to  time  so  as  to 
divide  the  burden  of  constant  calling.  A  low 
clear  voice  should  be  cultivated,  and  the  assistant 
calling  should  watch  the  assistant  who  is  at  the 
ledger  so  as  to  facilitate  his  work.  Thus,  if  the 
assistant  have  an  item  in  the  journal  like  this 

Insurance  126        $180.00 

To  Aetna  Co.    66  $180.00 

he  calls  "One  twenty-sbc,  insurance,"  and  then 
waits  till  his  associate  has  found  the  ledger  page, 
then  adds,  "Debit  one  hundred  eighty  dollars." 
The  ledger  assistant  should  signify  assent,  usually 
by  saying  "Yes,"  or  "Checked,"  or  "Um,"  or 
something  like  that.  Some  assistants  just  grunt 
a  little. 

If  the  assistant  who  is  calling  should  at  once 
say  "Insurance,  page  126,  debit  one  hundred 
eighty  dollars"  the  ledger  assistant  will  prob- 
ably forget  the  amount  by  the  time  he  has  found 
the  page  and  a  little  conversation  may  follow  like 
this: 

"How  much  did  you  say?" 

"One  hundred  and  eighty  dollars." 


42       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

"Debit  or  credit?" 

"Debit.'? 

"Oh!  Why  didn't  you  say  so  before?" 
All  of  which  wastes  time,  wears  on  the  temper 
and  makes  the  throat  dry,  especially  if  it  occurs 
several  thousand  times  in  a  single  audit.  Some 
accountants,  in  these  circumstances,  check 
amounts  although  they  do  not  clearly  remember 
the  figures  called  to  them,  fearing,  perhaps,  that 
they  will  be  thought  stupid.  Such  checking  is 
worse  than  none. 

Let  the  junior  stand  aside  and  watch  two  other 
juniors  checking  postings,  having  in  mind  the 
foregoing  remarks — he  will  then  realize  the 
amount  of  energy  that  may  be  wasted  in  the  work. 

Certain  forms  of  error  in  posting  are  recog- 
nized as  common,  among  them  being  the  trans- 
position of  figures  and  the  misplaced  decimal 
point. 

Many  seniors  test  their  juniors  by  calling  in- 
tentionally transposed  figures  to  find  whether  the 
junior  is  sufficiently  attentive  to  catch  the  error; 
the  failures  to  detect  called  transpositions  are  fre- 
quent, and  the  concentration  of  mind  needed  to 
detect  such  error  is  quite  great,  especially  if  the 
auditors  have  been  checking  postings  for  some 
time  without  finding  any  errors. 

Allied  to  the  transposition  of  figures  is  another 
form  of  error,  which  occurs  quite  as  frequently 


CHECKING  AND  TESTING   POSTINGS         43 

in  copied  figures  as  in  figures  written  from  an  oral 
source.  This  form  of  error  affects  a  combination 
of  figures  such  as  $166.76,  which  may  be  copied 
$167.76  or  $176.76.  In  either  case  close  atten- 
is  needed  to  catch  the  error  when  the  figures  are 
called  in  checking  postings. 

Not  alone  in  this  work,  but  in  all  kinds  of  me- 
chanical or  mental  work,  a  long  series  of  monoto- 
nous items,  devoid  of  incident,  dulls  the  mind  and 
renders  it  unfit  to  detect  minor  errors.  It  is  well, 
therefore,  if  possible,  to  check  postings  for  a 
while,  then  change  to  checking  footings  or  vouch- 
ing, so  that  the  faculties  may  not  be  blunted  for 
any  of  the  work. 

The  misplacement  of  the  decimal  point  is  more 
common  in  copied  work  than  in  matter  written 
down  as  it  is  called;  but  in  calling  amounts  there 
are  some  forms  of  error  due  to  inexperience  that 
are  highly  annoying.  For  example,  consider  the 
following  figures:  $26,874.30;  $1968.30; 
$1004.30;  $1.84,  $184.00;  $0.26;  $26.00,  and 
$26.15.  The  first  should  be  called  "Twenty-six 
thousand  eight  seventy-four,  thirty."  No  one 
can  misunderstand  that.  The  next  is  "Nineteen 
sixty-eight,  thirty;"  but  the  third  is  not  "Ten 
four,  thirty,"  but  "One  thousand  four  dollars, 
thirty  cents."  The  fourth  example  is  "One 
eighty-four,"  but  the  fifth  is  not  "One  eighty- 
four,"  but  "One  hundred  eighty-four  dollars." 


44       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

The  next  item  is  called  "twenty-six  cents,"  and 
the  next  "twenty-six  dollars,"  but  the  last  is 
"twenty-six  fifteen." 

A  little  thought  will  make  clear  why  these  fig- 
ures are  called  in  the  manner  specified,  and  the 
mental  exercise  of  reasoning  out  why  these  forms 
are  used  will  better  fix  in  the  mind  the  proper  ex- 
pressions than  a  reasoned  explanation  here. 
Think  it  over,  remembering  that  the  shortest  pos- 
sible form,  consistent  with  positive  certainty  of 
meaning,  is  needed. 

Vouching  Entries 

Vouching  falls  naturally  into  several  classes, 
somewhat  as  follows: 

Vouching  payments  with  receipts. 
Vouching  payments  with  cheques — ordinary, 
Vouching  payments  with  voucher  cheques^ 
Vouching  purchases  with  original  bills, 
Vouching  capital  additions  with  origmal  bills, 
Vouching  petty  expenses. 
Where  payments  made  through  the  cashbook 
are  posted  direct  to  expense  accounts — not  passed 
through  a  voucher  record — it  is  frequently  nec- 
essary to  vouch  the  payments  with  invoices  as 
well  as  with  canceled  cheques,  especially  if  the 
canceled   cheques   be   not   of    the    form    called 
voucher  cheques. 


VOUCHING   ENTRIES  45 

In  such  cases  the  auditor  should  see  that  the 
invoices  are  made  on  the  printed  forms  of  the 
firms  from  which  the  purchases  are  made;  not  on 
any  form  made  up  in  the  office  of  the  client  whose 
accounts  are  under  audit.  Upon  verifying  an 
item  a  vouch  mark  should  be  placed  upon  the 
cashbook  over  the  item  checked,  thus :        V 

$1,863.24. 

When  the  work  is  begun  the  auditor  should 
not  leave  it  until  it  is  finished  up  to  a  given  point, 
and  he  should  make  a  record  of  all  items  up  to 
that  point  for  which  the  vouchers  are  missing. 
If  this  be  not  done  the  office  staff  can  imitate  the 
auditor's  mark,  and  thus  cover  any  items  that 
they  know  to  be  improper. 

Vouchers  may  be  filed  in  the  order  in  which 
they  appear  in  the  cashbook;  in  that  case  the 
work  will  proceed  rapidly.  Often,  however,  the 
invoices  are  filed  in  alphabetical  order,  and  in 
such  cases  the  page  on  which  they  are  entered  or 
the  consecutive  cheque  number  may  be  noted 
upon  them  and  will  assist  in  finding  the  entrie's. 
The  vouchers  themselves,  if  used  where  the 
cheques  are  not  voucher  cheques,  may  be  re- 
ceipted. If  it  be  the  custom  of  the  firm  to  obtain 
receipts,  the  auditor  should  note  any  items  not 
receipted,  but  the  custom  of  using  the  canceled 
cheque  as  a  receipt  is  growing  and  appears  to 
have  caused  no  losses. 


46       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

Where  the  cheques  are  made  out  to  "cash," 
to  an  employee  or  to  any  name  other  than  that 
appearing  on  the  original  Invoice  for  the  goods 
purchased,  a  receipt  from  the  supplier,  on  his 
own  stationery,  should  be  produced. 

If  the  cheques  used  be  voucher  cheques,  the 
examination  of  original  bills  for  expense  items  is 
less  important.  It  is  usually  sufficient  to  see  that 
the  cheques  are  made  out  to  the  proper  firm, 
all  properly  approved  and  have  been  passed 
through  a  bank.  The  auditor  will  not  know  the 
signatures  of  the  endorsers,  but  the  banks  do 
know  them  and  pay  to  others  than  the  proper 
payees  only  at  their  own  risk. 

Where  vouchers  are  filed  alphabetically  it 
often  happens  that  the  auditor  can  save  time  by 
checking  vouchers  direct  to  the  expense  accounts 
in  the  ledger  or  subledger.  For  instance,  if  the 
expenses  are  posted  from  the  cashbook  item  by 
item,  either  to  the  ledger  or  to  a  subordinate 
record,  and  are  classified  in  such  ledger  or  record, 
ail  the  bills  of  a  given  firm,  filed  together,  are 
likely  to  apply  on  one  class  of  expense.  This  Is 
particularly  true  of  the  expense  accounts  of  stock- 
brokers, banks,  etc. 

The  need  for  vigilance  in  examining  vouchers 
to  see  that  they  have  not  been  falsified  is  obvious; 
but,  in  addition  to  looking  for  alterations,  etc., 
the  auditor  should  keep  in  his  mind  the  normal 


VOUCHING   ENTRIES  47 

requirements  of  a  business  such  as  the  one  under 
examination,  and  should  question  any  dispropor- 
tionately large  disbursement  that  may  be  found. 
Thus,  if  it  be  found  that  postage  bills  are  largely 
in  excess  of  the  amount  of  preceding  periods,  or 
if  petty  disbursements  for  cigars,  liquors,  etc., 
occur,  the  auditor  should  quietly  investigate. 

In  vouching  purchase  records  with  original 
bills  the  auditor  should  look  out  for  duplications. 
Frequently  firms  send  in  bills  in  duplicate,  and 
many  instances  occur  where  both  copies  are  en- 
tered separately.  Bills  should  be  approved  as  to 
quantities  received,  prices  and  classification.  On 
commencing  voucher  work  if  the  auditor  does 
not  know  who  is  entitled  to  approve  bills,  he 
should  first  inquire,  and  if  possible  see  a  specimen 
of  the  signatures  of  the  persons  approving. 

Usually  it  is  necessary  only  to  see  that  the 
amount  of  the  entry  is  supported  by  the  vouchers ; 
but  in  case  of  bills  for  merchandise  constituting 
the  principal  items  of  the  trading  accounts  it  may 
also  be  requisite  to  check  the  quantities  entered. 

Upon  verifying  each  item  the  auditor  must 
place  the  "V"  vouch  mark  just  over  the  amount 
verified,  and  stamp  his  audit  rubber  stamp  on  the 
voucher.  This  should  be  so  done  that  it  covers 
a  part  of  the  original  bill  that  could  not  be  cut 
off  without  spoiling  the  invoice.  If  there  be  a 
long  space  below  the  items  on  the  invoice  and 


48       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

the  auditor  stamp  in  this  space,  the  stamp  mark 
may  be  cut  off  and  the  voucher  submitted  again 
to  justify  another  entry. 

During  this  checking  work,  vouchers  for  capi- 
tal additions  will  pass  through  the  hands  of  the 
auditor,  and  he  should  remember  that  additions 
to  permanent  assets  must  be  listed  and  described 
in  his  working  papers.  If  the  additions  for  the 
period  be  few  it  is  best  to  note  details  of  the  pur- 
chases at  the  time  the  vouching  is  done,  so  that 
the  vouchers  need  not  be  gone  over  again.  But 
if  capital  additions  be  very  numerous  it  may  be 
best  to  leave  the  schedule  work,  and  go  over  the 
vouchers  again.  This  latter  plan  is  best  where 
many  additions  are  purchased  from  one  or  two 
firms  and  the  invoices  are  filed  alphabetically. 

Petty  expense  vouchers  (petty-cashbook)  arc 
more  subject  to  falsification  and  to  abuse  than 
any  other  vouchers.  Such  falsifications  represent 
petty  stealing,  sometimes  of  cash,  sometimes  of 
stamps,  sometimes  of  merchandise.  If  a  firm 
purchase  for  its  own  use  articles  that  are  suitable 
also  for  private  use  the  principal  safeguard  is  the 
approval,  noted  on  the  vouchers,  of  some  one 
other  than  the  person  disbursing  the  money. 

Purchases  of  postage  stamps  and  some  other 
articles  are  not  covered  by  vouchers  signed  by 
outsiders.  If  the  voucher  be  signed  by  one  office 
employee  it  should  be  approved  by  another — 


VOUCHING    ENTRIES  49 

preferably  a  person  of  high  standing  in  the  office. 
Carfares,  overtime  pay  to  clerks,  allowances  for 
meals,  traveling  expenses — all  are  covered  only 
by  vouchers  prepared  in  the  office.  All  should  be 
covered  by  proper  approvals  and  should  be 
watched  to  detect  alterations  after  approval. 

Before  leaving  the  subject  of  vouching  it  may 
be  well  again  to  urge  the  auditor  to  take  the 
trouble  to  understand  what  the  transactions  really 
are.  All  the  knowledge  you  can  pick  up  from  the 
vouchers  will  be  wanted  later  in  the  audit.  You 
should  know  what  the  insurance  bills  represent, 
what  the  credits  for  insurance  return  premiums 
represent  and  where  credited,  so  that  when  you 
value  unexpired  insurance  you  will  not  overlook 
reduced  rates  covered  by  return  premiums. 

If  the  junior  be  told  to  vouch  the  cash  pay- 
ments with  receipts  he  will  be  given  the  book 
and  shown  where  to  find  receipts.  He  should 
start  working  steadily,  not  wasting  time  at  the 
beginning  on  microscopic  matters,  or  he  will  have 
to  hurry  the  v/ork  at  the  end.  He  should  not  hesi- 
tate to  ask  the  cashier  to  show  him  just  how  the 
book  and  vouchers  are  arranged,  and  to  explain 
any  means  that  might  exist  of  locating  readily 
any  voucher  required.  If  the  voucher  record  is  to 
be  vouched  the  invoices,  in  all  probability,  will  be 
arranged  in  the  same  order  as  that  in  which  the 
entries  appear  in  the  book. 


50       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

Where  one  person  works  alone  in  vouching, 
he  may  find  it  best  to  compare  a  batch  of  vouch- 
ers, putting  his  vouch-mark  on  the  book,  and 
stamping  with  his  rubber  stamp  when  the  batch 
is  finished.  If  he  do  this  he  must  take  care  not 
to  stamp  vouchers  that  have  been  overlooked  in 
checking  the  book  entries.  When  the  vouching  Is 
done  a  list  of  items,  the  vouchers  for  which  are 
missing,  is  prepared.  This  list  or  a  copy  of  It  is 
to  be  submitted  to  the  clerk  having  charge  of  the 
vouchers,  so  that  he  may  produce  any  voucher  not 
found  by  the  auditor.  If  such  a  clerk  should  find 
that  a  voucher  reported  as  missing  actually  bears 
the  auditor's  rubber  stamp  imprint  he  is  likely  to 
consider  the  work  done  by  the  auditor  as  worth- 
less. After  making  up  the  list  of  missing  vouch- 
ers the  auditor  who  has  worked  alone  should  go 
over  the  file  of  vouchers  to  make  sure  that  none 
of  those  listed  is  present. 

If  two  persons  work  together  on  the  vouching 
one  should  examine  and  stamp  the  vouchers 
while  the  other  checks  the  entries  In  the  books. 
In  this  case  there  should  be  no  risk  of  stamping 
vouchers  that  are  not  marked  off  on  the  books. 

Checking  Accounts  Carried  in  Foreign 
Currency 

Most  Importing  houses  have  accounts  with 
foreign  houses,  the  invoices  and  the  statements 


ACCOUNTS    IN    FOREIGN    CURRENCY  5 1 

of  which  are  in  foreign  currency,  and  the  auditor 
is  called  upon  to  reconcile  the  balance,  in  dollars, 
with  the  balance  as  stated  by  the  foreign  house. 
In  well  ordered  books  the  transactions  are  ad- 
justed by  debits  or  credits  to  exchange  account  so 
as  to  appear  at  a  fixed  rate  of  exchange,  and  for- 
eign currency  is  stated  for  each  item  by  the  side 
of  the  American  currency,  in  such  a  way  that 
both  may  be  added  and  the  balance  determined 
in  each  currency.  If  this  is  done  any  discrepancy 
between  the  dollar  balance  and  that  in  foreign 
currency  must  be  due  to  errors  in  conversion.  To 
find  such  errors,  especially  in  a  long  account,  it  is 
not  necessary  to  check  all  conversions.  The  audi- 
tor, by  checking  the  conversion  of  the  carried- 
over  balance  at  the  end  of  each  page,  can  deter- 
mine the  page  which  contains  the  error,  and  then 
check  conversions  on  that  page  only. 

As  a  consequence  of  delay  in  exchanging  com- 
munications foreign  accounts  are  liable  to  shovr 
many  differences  covering  items  in  transit  and 
unsettled  claims.  After  verifying  the  correctness 
of  the  conversion  of  the  balance  on  the  ledger  as 
shown  above,  the  auditor  should  proceed  to 
check  item  by  item  the  entries  on  the  ledger  with 
the  entries  on  the  foreign  statement,  and  should 
have  no  difficulty  in  locating  the  items  in  sus- 
pense. 


52       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

Often,  however,  the  ledger  will  contain  only 
the  American  equivalent  of  the  foreign  invoices. 
If  this  be  the  case,  it  is  hardly  practicable  to  make 
a  satisfactory  reconciliation  without  setting  up, 
on  the  working  papers,  an  account  showing  both 
kinds  of  currency  in  parallel  columns,  not  giving 
any  detail  except  the  money  amounts.  Then  the 
auditor  should  proceed  as  indicated  above. 


CHAPTER  IV 

Verification  of  Securities 

Auditors  are  often  required  to  verify  by  physi- 
cal inspection  securities  owned  or  held  by  clients. 

Where  only  a  very  small  quantity  is  to  be  ex- 
amined the  procedure  needs  no  comment,  but 
where,  as  in  cases  of  banks,  stock-brokers,  insur- 
ance companies  and  large  corporations,  there  is 
a  large  amount  of  securities  to  be  verified  the 
procedure  is  important. 

If  possible  the  auditor  should  first  obtain  a  list 
of  the  securities  to  be  counted.  A  satisfactory 
count  then  requires  that  two  assistants  work  to- 
gether, one  checking  the  list  while  the  other 
counts  the  stocks  and  bonds. 

Almost  always  the  securities  will  be  contained 
in  tin  boxes.  If  there  is  more  than  one  container 
the  auditor  should  provide  himself  with  adhesive 
seals,  printed  preferably  with  soluble  aniline  ink, 
to  be  affixed  to  each  container  as  soon  as  its  con- 
tents have  been  examined.  Taking  the  first  con- 
tainer, it  should  be  emptied  entirely  of  securities, 
which  should  be  placed  at  one  end  of  the  table 
on  which  the  count  is  made.  Item  by  item  the  secu- 
rities should  be  counted,  and  immediately  re- 
placed in  the  container.  When  all  are  counted  the 
53 


54       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

container  should  be  locked  and  sealed  with  the 
auditor's  seal.  The  next  container  may  then  be 
taken  up  and  its  contents  verified  in  the  same  way. 
When  all  have  been  counted,  the  auditor  should 
see  that  all  his  seals  remain  unbroken. 

In  the  absence  of  these  precautions  it  is  pos- 
sible for  the  same  securities  to  be  presented  twice 
and  counted  twice.  Indeed,  fraud  has  actually 
occurred  in  this  manner. 

In  no  circumstances  should  an  auditor  verify 
securities  except  in  the  presence  of  a  representa- 
tive of  the  client.  If  he  does  he  is  liable  to  be 
charged  with  the  misappropriation  of  any  secu- 
rities that  may  be  missing. 

Varying  conditions  modify  the  requirement  as 
to  the  amount  of  inspection  needed;  but  it  may 
be  said  that  the  mere  possession  of  securities  does 
not  imply  ownership.  Coupon  bonds,  which  are 
transferable  by  mere  delivery,  cannot  usually  be 
identified  as  the  property  of  any  person  other 
than  the  actual  custodian,  although  in  a  few  cases 
the  numbers  may  be  checked  with  advantage. 

Stocks,  however,  bear  the  name  of  the  owner 
of  record,  and  if  submitted  for  inspection  a,s  be- 
ing the  property  of  another  they  must  be  either 
(i)  endorsed  to  the  new  owner,  (2)  endorsed  in 
blank  or  (3)  accompanied  by  a  power  of  attor- 
ney enabling  the  new  owner  to  have  the  shares 
transferred  to  himself. 


VERIFICATION   OF   SECURITIES  55 

Securities  held  by  stock-brokers  for  clients  who 
have  bought  them  on  margin  are  either  in  the 
name  of  the  stock-broker  or  endorsed  in  blank. 
Securities  held  by  private  investors,  insurance 
companies  and  large  corporations  are  generally 
in  the  name  of  the  owner  or  endorsed  to  the 
owner.  Note  should  be  made  of  any  securities 
that  are  so  executed  and  endorsed  that  the  al- 
leged owner  could  not  sell  and  deliver  them  to 
an  outsider. 

Coupon  bonds,  as  stated,  are  transferable 
without  endorsement  by  mere  physical  delivery. 
They  are  to  be  verified  by  count  only,  note  being 
made  that  the  unmatured  coupons  are  attached  to 
them. 

Occasionally  it  is  necessary  to  see  that  the 
bonds  are  signed  by  the  officers  of  the  issuing 
company,  but  this  occurs  mainly  in  the  case  of 
special  issues  not  guaranteed  by  a  trustee  or  reg- 
istrar. 

Bonds  are  issued  in  several  denominations,  al- 
though the  standard  is  $1,000.  Some  companies, 
unfortunately,  have  issued  bonds  of  $1,000, 
$500  and  $100,  all  under  the  same  mortgage, 
printed  in  colors  and  binding  so  nearly  alike  that 
a  careless  count  fails  to  distinguish  between  them. 

The  description  of  bonds  and  stocks  cannot  be 
too  precise.  There  are  many  issues  almost  but 
not  quite  alike  in  name,  but  of  very  different 


56       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

values.  An  instance  occurs  in  the  several  stocks 
bearing  as  part  of  the  title  the  words  "Rock 
Island."  Although  financial  columns  of  news- 
papers refer  to  "Rock  Island"  as  though  that 
were  a  sufficient  identification  of  the  stock,  the 
reference  Is  to  "Chicago,  Rock  Island  &  Pacific." 
There  is,  however,  a  stock  of  the  Rock  Island 
Company.     Similar  cases  are  common. 

Stock  exchange  houses  use  contractions  for  the 
names  of  stocks,  some  recognized  and  authorized 
by  the  exchange,  others  special  contractions  for 
stocks  not  listed.  Only  a  person  thoroughly 
familiar  with  securities  can  safely  use  them.  The 
junior  who  learns  a  few  of  them  and  takes  pride 
in  showing  his  knowledge  has  pitfalls  before  him. 
If  he  forgets,  and  uses  an  erroneous  contraction 
in  listing  the  securities  that  he  is  engaged  in  veri- 
fying, the  error  damages  or  utterly  vitiates  the 
whole  work  of  verification.  What  is  required  is 
not  a  proof  that  most  of  the  securities  are  cor- 
rect, but  that  every  single  one  is  so. 

Some  of  the  less  well  known  securities,  espe- 
cially the  stocks  of  "underlying"  companies,  are 
of  extraordinary  value.  Do  not  think  because  a 
stock  bears  an  unfamiliar  or  grotesque  name  that 
it  is  necessarily  a  wildcat  security  —  it  may  be 
almost  priceless,  carrying  with  it  franchises  or 
properties  that  are  indirectly  represented  by  well- 
known  issues. 


VERIFICATION  OF  SECURITIES  57 

Finally,  after  the  count  is  complete,  note  on  the 
verified  schedule  the  time  and  place  of  verifica- 
tion, the  assistants  engaged,  and  the  qualifica- 
tions, if  any,  which  the  auditor  has  to  make 
either  in  respect  of  defective  endorsements  or 
other  circumstance. 

Certificates 

In  obtaining  bank  certificates  the  auditor  should 
mail  the  request  to  tlie  banks  with  his  own  hands. 
He  should  in  no  circumstances  trust  this  to  clients, 
as  they  may  fill  out  the  certificates  themselves  and 
mail  them  back  to  the  auditor,  who  could  not  tell 
whether  the  signatures  on  them  were  those  of 
bank  officials  or  not.  In  obtaining  certificates  as 
to  liabilities  not  on  the  books,  the  auditor  should 
follow  some  approved  form  which  should  include 
a  declaration  that  a  search  had  been  made  for  all 
ascertainable  items  of  debt  and  that  they  had  been 
properly  taken  up.  Certificates  are  auxiliary  evi- 
dence only  and  do  not  relieve  the  auditor  of  the 
duty  of  making  his  own  investigation  of  any 
matter. 


CHAPTER  V 

Taking  Trial  Balances 

As  a  general  rule  the  books  will  be  balanced 
and  trial  balances  prepared  before  the  auditor 
takes  up  his  work.  These  trial  balances,  how- 
ever, must  be  checked  with  the  ledgers  and  the 
auditor  should  not  fall  into  the  error,  after  agree- 
ing the  trial  balance  with  the  ledger,  of  accepting 
the  balance  shown  by  the  controlling  account  as 
the  amount  of  accounts  receivable  or  accounts 
payable,  as  the  case  may  be.  It  is  almost  always 
the  case  that  the  customers'  ledger  contains  credit 
balances  and  the  creditors'  ledger  debit  balances. 
These  may  be  large  in  amount,  and  cases  have 
occurred  in  which  companies  wishing  to  improve 
the  appearance  of  their  balance-sheets  have  car- 
ried many  large  debit  accounts  In  their  creditors' 
ledger,  thereby  apparently  reducing  heavily  by 
equal  amounts  the  quantity  of  accounts  receivable 
and  accounts  payable.  The  auditor  on  his  work- 
ing papers  should  add  to  accounts  receivable  all 
the  debit  balances  in  the  creditors'  ledger  and 
to  accounts  payable  all  credit  balances  in  the 
customers'  ledger,  unless  these  balances  are  offset 
by  corresponding  balances  on  the  other  side  in 
other  ledger  accounts  of  the  same  firms. 

58 


TAKING   TRIAL   BALANCES  59 

This  Intermingling  of  debit  and  credit  balances 
in  customers'  ledgers  is  particularly  notable  in  the 
case  of  accounts  with  moving  picture  exhibitors. 
In  certain  accounts,  the  balance  due  from  custom- 
ers, as  shown  by  the  controlling  account,  is  less 
than  one-third  of  the  total  debit  balances,  the  dif- 
ference being  made  up  of  amounts  paid  by  other 
customers  in  advance.  In  all  such  cases  the  state- 
ments prepared  should  show  as  accounts  receiv- 
able the  total  of  the  debit  balances  and  show  on 
the  other  side  of  the  balance-sheet  as  advanced 
deposits  the  amount  of  the  credit  balances. 

Where  debit  balances  are  found  in  creditors' 
ledgers,  the  auditor  may  find  that  they  are  set  up 
by  charging  to  the  creditor  cash  paid  to  him  for 
goods  which  have  actually  been  delivered  but 
have  not  yet  been  put  through  the  books.  This 
has  frequently  been  the  means  of  detecting  pur- 
chases which  have  been  omitted  from  the  ac- 
counts. It  has  also  occurred  that  credit  balances 
to  customers  have  on  investigation  shown  that 
customers  have  paid  for  goods  which  they  have 
duly  received  that  have  been  omitted  from  the 
sales  accounts,  either  intentionally  or  by  accident. 

It  will  be  clear  that  the  discounts  to  be  allowed 
on  accounts  receivable  may  be  computed  on  the 
total  debit  balances  and  not  on  the  net  balance 
of  a  controlling  account,  especially  if  the  credit 
balances  represent  either  cash  payment  by  cus- 


6o       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

tomers  in  advance  or  credits  for  goods  purchased 
on  which  discount  is  not  receivable. 

In  making  these  trial  balances  it  is  usual  to  dis- 
sect the  accounts  so  as  to  show  the  amount  over- 
due. No  hard  and  fast  rule  can  be  given  for  sepa- 
rating overdue  accounts  from  those  which  are 
not  overdue.  In  each  case  the  customs  of  the 
trade  and  the  arrangements  of  the  firm  under  ex- 
amination must  be  considered.  In  some  busi- 
nesses, such  as  raw  and  spun  silk,  the  dating  is 
arranged  with  the  customer  for  each  purchase, 
and  a  note  of  such  dating  is  usually  put  in  the 
ledger.  The  arrangement  in  such  cases  may  be 
that  the  customer  can  take  90  days  receiving  no 
discount,  or  60  days  receiving  1%  discount  or 
cash  within  10  days  receiving  2%  discount.  Such 
an  account  would  not  be  considered  overdue  un- 
less the  date  had  passed  at  which  the  account  be- 
came due  without  discount,  and  the  bald  state- 
ment that  an  account  is  overdue  is  not  sufficient. 

Working  papers  should  contain  trial  balances 
showing  all  the  customers'  accounts  if  possible 
and  should  show  for  each  account  of  which  any 
part  appears  to  be  overdue  the  amount  over  60 
days,  the  amount  over  90  days  and  the  amount 
over  6  months  old.  These  periods  may  be  varied 
if  the  customs  of  the  business  demand  it.  The 
manager  of  the  clients'  office  or  the  credit-man 
should  then  go  over  the  list  of  overdue  accounts 


ITEMS    NOT   ON   TRIAL   BALANCES  6 1 

prepared  by  the  auditor  and  should  add  his  com- 
ments as  to  ultimate  collectibility,  and  If  possible 
should  estimate  the  amount  of  reserve  needed  to 
provide  against  bad  debts,  which  may  reasonably 
be  anticipated.  This  estimate  is,  of  course,  only 
advisory,  and  the  auditor  is  not  bound  by  it. 

Where  bad  debts  have  been  written  off,  the 
auditor  should  ascertain  that  the  Insolvencies 
really  have  occurred,  either  by  examination  of 
correspondence  or  in  some  other  way.  If  book- 
keepers or  cashiers  are  permitted  without  super- 
vision to  charge  off  as  bad  any  accounts  which 
they  may  claim  to  be  uncollectible,  it  Is  possible 
for  them  to  collect  and  appropriate  without  de- 
tection the  proceeds  of  accounts  with  firms  that 
discontinue  business  with  the  client.  If  accounts 
are  stated  to  be  in  the  hands  of  attorneys  for  col- 
lection that  fact  should  be  verified  if  possible, 
either  by  examination  of  correspondence  or  by 
direct  Inquiry  of  the  attorneys  in  question. 

Of  course  In  every  case  the  working  papers  at 
every  examination  should  contain  a  complete  copy 
of  the  trial  balance  of  the  general  and  private 
ledgers. 

Items  Not  on  Trial  Balances 

Among  the  Items  which  must  be  taken  Into 
account  but  may  not  be  on  the  books  are  some 
which  the  junior  should  detect  and  take  up  in 


62       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

every  instance.  These  are  omissions  from_inter- 
departmental  balances  and  balances  between  sub- 
sidiary companies,  goods  In  transit  and  cash  in 
transit. 

It  is  quite  common  to  find  trial  balances,  appar- 
ently In  order,  which  contain  among  "accounts 
receivable"  amounts  due  from  subsidiary  com- 
panies or  from  departments  of  the  same  com- 
pany, and  among  "accounts  payable"  correspond- 
ing entries,  but  for  differing  amounts.  Wherever 
a  trial  balance  shows  any  balance  due  from 
one  department  to  another,  from  one  subsidiary 
to  another  or  from  either  to  the  principal  com- 
pany the  auditor  must  see  that  the  entry  is  ex- 
actly offset  by  a  corresponding  Item  In  the  ac- 
counts of  the  subsidiary  or  department  concerned. 
If  a  department  carry  as  an  asset  an  am.ount  due 
from  another  department  and  the  second  depart- 
ment does  not  show  any  liability  in  respect 
thereto  the  accounts  as  a  whole  contain  an  in- 
flation of  net  assets,  and  the  auditor  can  so 
easily  find  such  an  error  that  no  excuse  for  fail- 
ing to  do  so  will  be  admitted. 

Where  subsidiary  companies  are  concerned 
the  detection  of  such  errors  is  equally  easy  if 
the  auditor  has  access  to  books  of  subsidiaries. 

The  detection  of  omission  from  inventories  of 
goods  in  transit  and  of  cash  in  transit  are  dealt 
with  under  appropriate  headings  herein. 


ITEMS    NOT    ON    TRIAL    BALANCES  63 

To  sum  up  this  section,  let  the  auditor,  when- 
ever he  has  access  to  books  showing  both  sides 
of  a  transaction,  compare  the  two  entries  and 
agree  the  resulting  balances. 


CHAPTER  VI 

Vouching  Capital  Assets  and  Additions 
Thereto 

Where  periodical  audits  are  made  it  is  usual 
to  prepare  balance-sheets  annually  or  semi-an- 
nually. For  this  purpose  it  is  necessary,  having 
orginally  verified  the  capital  assets,  only  to  vouch 
the  additions  for  the  period  since  last  balance- 
sheet.  This  vouching  is  not  limited  to  a  compari- 
son of  items  with  original  invoices  —  it  implies 
also  scrutiny  of  the  character  of  the  items  to 
ascertain  that  items  properly  chargeable  to 
expense  are  excluded. 

If  the  accounts  under  audit  are  so  kept  that 
there  is  a  depredation  reserve  set  up,  intended 
to  cover  both  depreciation  of  existing  assets  and 
renewals  of  discarded  items,  it  is  necessary  to 
see  that  replacements  are  charged  not  to  the  as- 
set accounts  but  to  the  reserve. 

The  procedure  is  to  list,  from  the  ledger  and 
auxiliary  records,  tlie  additions,  showing  date  of 
purchase,  name  of  supplier  and  amount;  then  to 
examine  original  bills  and  note  on  schedule, 
from  the  original  bill,  the  character  of  the  asset. 

In  making  these  notes  do  not  rest  content  with 
a  blind  copy  of  the  details  appearing  on  the  bill. 
64 


VOUCHING    CAPITAL   ASSETS  65 

It  may  be  a  purchase  of  an  automatic  screw  ma- 
chine, and  In  conformity  with  trade  custom  may 
be  described  on  the  invoice  thus : 

I  auto  No.  17633 — Model  B — with 
jackshaft  $9,000.00 

The  bill  head  on  which  it  is  printed  will  show 
that  the  article  is  not  an  automobile,  and  may 
show  just  what  the  machine  Is.  But  a  person  ex- 
amining your  schedule,  not  having  the  bill,  could 
form  no  idea  of  the  real  character  of  the  pur- 
chase. The  entry  on  your  schedule  should  ap- 
pear somewhat  as  follows: 

June  3 — Cincinnati  Mill  Mach.  Co. 

$9,000.00  Automatic  Screw  Machine 
Model  B 


The  general  form  of  the  schedule  may  be : 

Machinery 
Balance  last  audit  (Jan.  i,  1915)  $273,000.00 

Additions,  as  below  22,000.00 


$295,000.00 
Returned  and  discarded  items  1,100.00 


$293,900.00 


It  Is  often  desirable  to  note  on  the  schedule  the 
amount  of  depreciation  reserve  provided  at  the 
beginning  of  the  period  under  audit  and  also  the 
amount  added  during  the  period. 


66       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

Where  additions  to  plant  are  constructed  by 
the  employees  of  the  company  whose  books  you 
are  examining  you  are  to  some  extent  at  the 
mercy  of  the  company.  You  should  inspect  ori- 
ginal payrolls  to  see  that  the  employees  whose 
time  is  charged  to  construction  were  originally 
recorded  as  working  on  construction.  If  the 
company  has  not  so  separated  the  wage  accounts, 
the  auditor  should  ascertain  and  state  on  his 
schedule  the  grounds  upon  which  the  charges  to 
construction  were  made.  He  should  see  that  the 
wages  so  charged  are  not  widely  inconsistent  with 
the  materials  used  for  construction  and  the  fin- 
ished asset. 

Land  is  usually  covered  by  land  purchase  con- 
tracts and  evidence  of  payment  (canceled 
cheques,  etc.).  It  is  possible  to  inspect  official 
records  of  ownership,  kept  by  county  clerks,  etc.  ; 
but  the  auditor  is  not  expected  to  make  such  ex- 
aminations unless  there  be  a  special  reason. 

Buildings,  if  constructed  by  outside  firms,  are 
usually  covered  by  (i)  contract  with  builder;  (2) 
receipts  for  money  paid  on  account;  (3)  can- 
celed cheques;  and  (4)  architect's  certificates. 
Nos.  3  and  4  are  the  most  satisfactory  evidence. 
If  the  buildings  are  purchased  complete  the  evi- 
dence will  be  the  same  as  in  the  case  of  land. 

If  the  examination  is  not  one  of  a  series  of 
periodical  audits,  it  may  be  necessary  to  vouch, 


VOUCHING    CAPITAL   ASSETS  67 

as  far  as  possible,  all  the  fixed  assets  of  the  com- 
pany. If  at  any  recent  date  the  company  has  had 
an  appraisal  of  its  plant  made  by  appraisers  of 
good  standing  the  appraisal  may  be  taken  as  a 
starting  point  and  subsequent  additions  vouched 
with  original  bills.  If  no  such  appraisal  has  been 
made  the  most  convenient  procedure  Is  to  make 
first  a  schedule  of  the  account  as  It  appears  In  the 
ledger,  noting  posting  pages,  etc.,  for  conveni- 
ence in  finding  the  original  entries;  then  refer  to 
the  original  entries  and  make  sub-schedules,  fin- 
ally vouching  the  sub-schedules  with  invoices. 
These  schedules  may  appear  as  below: 

Machinery  per  ledger 

1912  Jan.      Voucher  record     page  18  $  1,123.00 

Feb.                 do                             29  9,800.00 

Mar.                do                           42  62.00 

"        Cash                                 122  100.00 


$11,085.00 


Sub-schedule — Machinery 
Voucher  Record— p.  18  (Details  from  bills) 

Cincinnati  Mill  Co.    $1,100.00  Radial  drill  14  spindle 
Apex  Fire  Extin- 
guisher Co.  23.00  I  doz.  hand  extinguishers 

$1,123.00 


In  vouching  items  several  years  old  the  auditor 
must  be  reasonable  in  his  demands  for  vouchers. 


68        DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

If  bills  can  not  be  obtained  look  at  the  canceled 
cheques.  If  much  depreciation  has  been  written 
off  the  importance  of  items  is  correspondingly 
decreased.  Thus,  if  io%  per  annum  be  provided 
as  a  reserve,  assets  purchased  eight  years  ago 
stand  at  only  one-fifth  of  their  original  cost. 

Although  a  firm  may  wish  to  strain  a  point  In 
stating  the  value  of  its  plant,  it  is  not  very  likely 
that  preparations  therefor  would  have  been  made 
several  years  ago,  especially  if  the  accounts  for 
the  last  two  or  three  years  have  been  properly 
treated  in  this  respect. 

There  are  certain  classes  of  capital  expendi- 
tures that  are  not  usually  provided  with  a  depre- 
ciation reserve,  but  are  reduced  each  year  by  de- 
ducting from  the  asset  account  the  amount  of  de- 
preciation. This  Includes  office  furniture,  fix- 
tures, costumes,  scenery,  properties,  etc.,  In  thea- 
tres and  moving  picture  studios,  small  tools  and 
other  assets  that  consist  of  a  large  number  of 
small  Items  with  frequent  replacements  and  fre- 
quent destruction  of  Individual  items.  In  such 
cases  the  auditor  should  see  that  the  net  value 
from  year  to  year  Increases  only  according  to  the 
extension  of  the  business,  If  an  extension  occurs. 

If  expenditures  are  made  In  another  part  of 
the  country  for  furniture,  etc.,  and  the  original 
bills  are  kept  at  the  distant  ofiice — the  home  office 
putting  the  expenditures  on  the  books  on  the  basis 


CHECKING    INVENTORIES  69 

of  reports  from  the  branches — the  auditor  may 
accept  such  entries  for  a  limited  amount  of  furni- 
ture, etc.,  but  not  for  capital  expenditures  of  more 
substantial  character.  The  amount  of  furniture, 
fixtures,  etc.,  that  can  be  passed  on  the  basis  of 
branch  reports  is  to  be  decided  according  to  cir- 
cumstances in  each  case.  Thus,  any  moving  pic- 
ture rental  branch  in  a  city  of  250,000  people 
must  purchase  $1,000  to  $2,000  of  furniture,  fix- 
tures, machines,  etc.  Out  of  this  sum  perhaps 
$500  to  $1,000  may  be  represented  by  machines 
and  typewriters  shipped  from  the  head  office. 
The  balance  may  be  passed  by  the  auditor  without 
vouchers  other  than  branch  reports. 

Checking  Inventories 

As  to  prices: 

In  case  of  merchandise  manufactured  by  the 
client  tlie  prices  should  be  checked  or  tested  with 
the  cost  accounts.  The  methods  used  in  mak- 
ing up  the  cost  accounts  should  be  examined  and 
noted  on  schedules.  If  the  cost  accounts  are  so 
kept  as  to  correspond  in  total  with  general  ledger 
figures  the  examination  of  method  used  need  not 
be  so  exhaustive  as  in  cases  where  the  costs  are 
made  up  each  independently,  v/ithout  attempting 
to  balance  total  costs  with  ledger  totals. 

In  any  case  the  cost  per  unit  of  material  should 
be  verified  with  original  bills,  care  being  taken  to 


yo       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

see  that  trade  discounts  are  deducted  from  nom- 
inal prices. 

Where  the  inventory  consists  of  purchased 
merchandise,  the  auditor  should  examine  original 
bills,  using  the  precautions  spoken  of  before  in  re- 
spect of  trade  discounts,  and  should  look  out  for 
old,  damaged  or  obsolete  stock.  He  should  par- 
ticularly guard  against  the  inclusion  as  regular 
goods  of  imperfect  merchandise  returned  by  cus- 
tomers. Such  merchandise  was  presumably  de- 
ficient or  it  would  not  have  been  returned.  Cases 
have  been  met  where  returned  merchandise  was 
taken  into  inventory  at  the  price  charged  to  the 
customer,  the  return  appearing  in  the  purchases 
as  though  bought  in  the  regular  way. 

It  is  sometimes  necessary  to  take  into  consid- 
eration, when  checking  the  inventory,  not  only 
the  current  market  prices  but  any  commitments 
which  the  firm  may  have  either  to  buy  or  to  sell 
merchandise. 

This  is  particularly  important  if  the  mer- 
chandise is  brought  from  foreign  countries,  and 
especially  where,  as  in  the  case  of  silk,  bristles 
and  some  other  Oriental  merchandise,  the  supply 
is  irregular  and  concentrated  in  certain  parts  of 
the  year.  The  inventories  of  raw  silk  importers 
invariably  need  careful  attention  in  this  respect. 

Merchandise  in  public  warehouses  often  forms 
a  large  part  of  the  inventories  of  importers.    The 


CHECKING   INVENTORIES  7 1 

merchandise  so  held  is  almost  always  in  original 
packages  bearing  marks  and  numbers  affixed  at 
the  place  of  origin. 

The  public  warehouses  furnish  monthly  to 
clients  lists  of  packages  on  hand,  giving  bale  and 
case  marks  and  numbers,  and  usually  the  name  of 
the  vessels  on  which  the  goods  arrived.  When 
such  merchandise  is  included  in  the  inventory  the 
auditor  should  trace  the  goods  by  package  marks 
to  original  invoices,  ascertaining  that  the  goods 
have  been  taken  up  as  purchases  and  that  the  in- 
ventory values  agree  with  invoiced  values. 

Such  merchandise  frequently  remains  in  the 
name  of  a  banker  holding  a  draft  against  it,  and 
only  by  checking  the  inventory  against  the  pur- 
chases taken  up  is  it  possible  to  ascertain  that  the 
goods  really  belong  to  the  client.  Some  houses 
only  take  up  such  purchases  when  the  lots  are 
broken;  others  take  them  up  as  soon  as  the  mer- 
chandise is  inspected;  still  others  take  up  the 
whole  amount  as  a  purchase  as  soon  as  they  are 
advised  of  the  arrival,  or  even  of  the  shipment  of 
the  goods.  It  is  evident,  then,  that  an  inventory 
of  the  merchandise  in  storage  is  more  than  usu- 
ally subject  to  error. 

Do  not  allow  any  inventory  sheets  which  you 
have  checked  to  leave  your  possession  until  you 
have  taken  from  them  notes  of  all  the  figures  and 
other  matter  that  you  need  for  your  working  pa- 


72       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

pers.     Do  not  give  any  one  the  opportunity  to 
change  your  figures  without  your  knowledge. 

As  to  Amount  (Extensions  and  Footings) : 

There  is  a  common  practice,  where  inventories 
arc  voluminous,  of  testing  inventories  by  check- 
ing all  extensions  over  a  certain  specified  amount 
— say,  all  items  over  $50.00. 

As  a  test  to  prevent  overvaluation,  that  is  not 
without  value ;  but  if  it  be  intended  to  find  the  true 
value,  as  it  should  be,  the  test  should  cover  a 
suitable  proportion  of  small  items.  An  item  ap- 
pearing as  one  dollar  might  be  an  erroneous  ex- 
tension, the  correct  amount  of  which  was  one 
thousand  dollars.  Any  errors  whereby  an  amount 
was  grossly  undervalued  would  be  likely  to  escape 
notice  if  only  the  large  items  were  checked. 

It  is  seldom  necessary,  in  checking  an  inven- 
tory, to  carry  the  calculation  to  the  last  cent.  The 
labor  of  checking  may  often  be  halved,  without 
diminishing  the  value  of  the  work,  by  ignoring 
decimals  in  the  price.  This  is  more  particularly 
so  where  the  number  of  units  is  comparatively 
small.  When  it  is  considered  that  inventory 
values  are  nothing  more  than  estimates,  sup- 
ported by  cost  prices,  it  is  clear  that  small  frac- 
tional figures  are  more  or  less  arbitrary.  The 
time  that  would  be  consumed  in  checking  the  ut- 
most decimal  places  can  be  utilized  to  greater 


MAKING   SCHEDULES  73 

advantage  In  covering  a  larger  number  of  items 
and  in  making  a  more  thorough  test  of  prices  and 
methods. 

The  checking  of  footings  offers  little  matter 
for  comment.  It  is  not  unusual,  however,  to  find 
individual  inventory  sheets,  through  error,  in- 
cluded twice  in  or  omitted  entirely  from  the  sum- 
mary. 

Making  Schedules 

Schedules  are  divided  into  two  general  classes : 
those  representing  assets  and  liabilities,  corre- 
sponding with  the  balance-sheet,  and  those  repre- 
senting operations,  which  should  be  made  to  cor- 
respond with  the  profit  and  loss  accounts  as  made 
up  by  the  assistant.  If  the  examination  follows  a 
previous  examination  made  by  the  accounting 
firm  for  which  the  assistant  is  working,  each 
schedule  of  assets  should  commence  with  the  bal- 
ance shown  at  the  last  examination.  It  should 
then  detail  all  additions,  giving  sufficient  descrip- 
tion to  satisfy  the  mind  of  the  senior  as  to  the 
character  of  the  asset  purchased,  and  should  give 
the  name  of  the  supplier  from  whom  purchased. 

The  schedule  should  bear  at  the  head  the  name 
of  the  matter  to  v/hlch  It  refers,  the  date  of  the 
audit  and  the  initials  or  signature  of  the  assistant 
doing  the  work. 


74       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

Although  no  specific  rule  can  be  given  as  to  the 
size  of  the  items  to  be  detailed,  the  assistant 
should  not  make  long  lists  of  very  small  items 
unless  he  does  so  for  the  purpose  of  showing  that 
petty  purchases  have  been  included  in  asset  ac- 
counts that  might  more  properly  have  been 
charged  as  expenses.  The  size  of  the  business  and 
the  total  amount  of  assets  will  be  a  guide  to  the 
minuteness  with  which  the  individual  items  should 
be  detailed. 

The  asset  and  liabilities  schedules  should  cover 
all  assets  and  all  liabilities  carried  on  the  balance- 
sheet,  except  that,  if  no  change  has  occurred  since 
the  last  examinatioin,  a  single  sheet  setting  forth 
that  fact  will  cover  all  assets  and  liabilities  in 
which  no  change  has  occurred. 

The  schedules  should  be  so  grouped  as  to  agree 
with  the  items  appearing  on  the  final  balance- 
sheet.  That  is  to  say,  if  an  item  appears  on  the 
balance-sheet  "Machinery  and  plant,"  and  itf  the 
machinery  and  plant  are  scattered  through  the 
ledger  under  a  dozen  different  headings,  the  as- 
sistant will  make  a  schedule  for  each  heading  and 
a  summary  bringing  the  totals  together  and  show- 
ing that  they  agree  with  the  amount  appearing  on 
the  balance-sheet.  It  is  desirable  also  that  the 
schedules  should  bear  notations  showing  the  re- 
serves carried  by  the  company  against  them. 


MAKING    SCHEDULES  75 

Many  assistants  make  useless  schedules.  Be- 
fore beginning  one  the  assistant  should  make 
clear  to  himself  what  object  he  intends  to  serve 
in  making  it.  We  have-seen  many  cash  schedules 
showing  the  receipts  and  disbursements  month  by 
month,  or  even  week  by  week  throughout  the  full 
period  covered  by  the  examination.  Such  sched- 
ules serve  no  purpose.  What  is  required  is  a 
schedule  verifying  the  amount  of  cash  on  hand  at 
the  date  of  audit,  not  a  schedule  showing  all  the 
money  that  has  passed  through  the  bank  account 
during  the  year.  Similarly,  we  have  from  time 
to  time  seen  schedules  dealing  with  accounts  re- 
ceivable and  accounts  payable  in  the  same  man- 
ner. Do  not  pad  your  papers  with  useless  detail. 
Do  not  begin  a  schedule  without  first  ascertaining 
that  data  exist  to  complete  it.  In  cases  of  doubt 
refer  to  your  senior. 

Profit  and  loss  schedules  are  not  usually  made 
to  cover  every  item  in  the  profit  and  loss  account. 
If  that  account  includes  ordinaiy  expenses,  on 
which  the  assistant  does  not  intend  to  comment, 
which  are  not  in  any  way  unusual,  schedules 
are  not  generally  needed.  In  making  profit  and 
loss  account  schedules  covering  the  many  opera- 
tions of  the  business,  it  is  desirable  to  show  month 
by  month  the  amounts  of  sales,  purchases,  etc., 
because  the  distribution  of  business  over  several 
months  is  frequently  a  matter  of  much  interest 


76       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

and  indicates  the  course  of  the  business  to  a 
greater  extent  than  a  sinple  statement  of  the 
amount  of  business  for  the  full  year. 

If  a  salary  schedule  is  p.-epared,  it  is  more  de- 
sirable that  it  should  show  for  one  specific  period 
the  persons  drawing  salary  and  the  rates  of  pay 
than  that  it  should  show^thcL  amount  drawn  each 
week  without  giving  the  names  of  the  persons 
drawing  it.  It  is  frequently  required  that  an  audi- 
tor submit  to  the  management  a  list  of  the  sal- 
aries paid,  especially  the  salaries  of  those  who 
are  employed  in  administration  of  the  business. 

While  it  is  not  necessary  to  make  schedules  for 
every  item  on  the  profit  and  loss  account,  it  is  nec- 
essary that  such  schedules  as  are  made  should 
agree  exactly  with  the  figures  in  the  profit  and 
loss  account.  In  this  respect  assistants  should 
note  whether  tlie  items  in  their  profit  and  loss 
account  agree  exactly  with  items  in  the  trial  bal- 
ance. If  not,  they  may  be  made  up  of  a  com- 
bination of  items  or  by  a  division  of  items  which 
appear  on  the  trial  balance ;  and  in  either  case  the 
working  papers  should  give  such  details  that  any 
one  taking  up  the  papers  at  a  later  date  can  as- 
certain the  origin  of  the  items  in  the  profit  and 
loss  account.  If  adjustments  are  made  by  the 
accountant  in  distribution  of  expenses,  they 
should  be  shown  on  any  schedules  that  take  up 
those  expenses. 


MAKING   SCHEDULES  77 

Finally  the  schedules  should  be  neat  and  legible 
and  should  be  on  some  consistent  plan.  If  one 
schedule  is  made  with  the  balance  brought  for- 
ward from  the  preceding  year  and  the  additional 
items  all  in  the  same  column  with  one  footing  at 
the  bottom,  all  should  be  made  on  the  same  plan. 
If,  however,  one  follows  the  plan  of  placing  the 
balances  carried  forward  in  a  column  to  the 
right,  and  then  totaling  the  additions  month  by 
month  or  for  the  full  period  In  an  adjoining 
column,  carrying  the  total  out  into  the  same  col- 
umn as  the  amount  brought  forward  from  the 
preceding  audit,  that  plan  should  be  followed 
throughout.  The  second  plan  is  the  better 
one,  inasmuch  as  it  shows  the  amount  of  addi- 
tions for  the  period  without  making  any  compu- 
tations. Remember  that  the  schedules  must  be 
intelligible  to  another  person  without  the  aid  of 
the  memory  of  the  assistant  who  prepared  them. 

When  an  audit  is  taken  up  for  the  first  time, 
it  is  the  practice  to  go  back  as  far  as  may  be 
necessary  to  obtain  justification  for  the  principal 
assets  and  fixed  properties  carried  on  the  books. 
Where,  however,  the  work  of  the  auditor  has 
been  preceded  by  a  consistent  audit  of  another 
auditing  firm,  the  question  arises  as  to  how  far 
the  certified  figures  of  the  preceding  auditor  may 
be  accepted.  This  is  clearly  dependent  on  the 
character  and  standing  of  the  preceding  auditors, 


78       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

and  assistants  should  in  all  cases  refer  either  to 
the  senior  in  charge  or  to  a  partner  the  question 
as  to  what  may  be  accepted  on  the  certificate  of 
other  auditors.  If  the  question  be  referred  to 
the  senior,  he  will  doubtless  refer  it  to  a  partner. 


CHAPTER  VII 
Finishing  the  Work 

There  are  certain  parts  of  the  work  which  as- 
sistants often  overlook.  In  closing  the  work  on 
any  matter,  assistants  should  first  see  that  all 
the  work  set  forth  in  the  programme,  or  list  of 
work  to  be  done,  is  completed  and  is  duly  signed 
for  by  the  assistants  doing  the  work.  They 
should  see  that  there  are  no  loose  papers  left  in 
the  envelope  containing  the  working  papers,  and 
should  see  that  all  bank  certificates  are  pasted 
to  the  schedules  to  which  they  refer  and  not  put 
loosely  among  the  papers.  They  should  see  that 
all  schedules  are  headed  with  the  name  of  the 
matter;  that  they  are  properly  totaled;  that  they 
are  in  agreement  with  the  exhibits  to  which  they 
refer;  and  that  they  are  signed  by  the  assistants 
who  made  them  out 

Where  assistants  are  instructed  to  make  tests 
of  any  work  they  should  state  exactly  of  what 
the  test  has  consisted.  Thus,  if  cash  footings 
have  been  tested,  the  programme  should  show 
that  the  test  has  been  for  certain  specific  months. 
If  footings  are  to  be  tested  it  is  not  sufficient  to 
say  "Tested  one-third  of  the  footings."  The 
work  programme  should  show  what  period  was 
79 


80       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

covered  by  the  test  in  question.  Where  tests  of 
general  ledger  footings  are  prescribed,  the  assis- 
tant should  not  include  in  his  test  any  of  the  ac- 
counts that  have  been  analyzed  for  the  purpose 
of  making  schedules  or  indeed  for  any  other  pur- 
pose, since  the  analysis  covers  the  correctness  of 
the  ledger  footings.  If,  however,  in  analyzing 
ledger  accounts  there  are  many  small  items,  to- 
gether with  a  number  of  much  larger  ones,  and 
if  the  account  is  of  such  a  character  that  the  as- 
sistant extracts  the  larger  items  and  takes  the 
smaller  items  in  a  single  figure  representing  the 
balance  of  the  account  as  shown  by  the  ledger, 
the  footings  should  be  checked  at  the  time  the 
schedule  is  made  up.  This  may  occur  in  mer- 
chandise accounts  where  small  charges  for 
freight  or  expressage  are  posted  to  the  same  ac- 
count as  the  merchandise  purchased.  This  oc- 
curs frequently  in  the  accounts  of  raw  silk 
dealers.  In  analyzing  these  accounts  it  is  some- 
times sufficient  to  extract  the  purchases  and  re- 
turns of  purchases  and  to  assume  that  the  balance 
of  the  account  is  made  up  of  such  items  as  tele- 
grams, cables,  freight,  etc.,  noting,  however, 
that  the  total  of  these  items  is  reasonably  small. 

Use  OF  Percentages  in  Reports 

The  accountant  frequently  can  inake  his  work 
much  more  valuable  to  the  client  by  giving  in- 


USE  OF  PERCENTAGES  IN  REPORTS    8 1 

telligent  statements  of  percentage  costs,  per- 
centages of  expenses,  etc.  In  making  these  per- 
centages It  Is  too  often  the  custom  to  waste  a 
great  amount  of  time  In  carrying  out  the  calcula- 
tion to  distant  decimal  places.  It  Is  seldom  that 
any  client  obtains  any  benefit  from  decimal  fig- 
ures in  a  percentage  statement  beyond  the  first 
figure  past  the  decimal  point.  Where  figures  are 
carried  to  two  and  three  decimal  places  an  Im- 
pression Is  created  In  the  client's  mind  that  the 
auditor  Is  nothing  more  than  a  computing  ma- 
chine. The  same  remarks  apply  where  costs  per 
day  or  per  ton  or  by  any  other  unit  are  made 
up.  In  each  case  the  figures  should  only  be  car- 
ried to  a  point  that  Is  really  significant.  The 
percentages  must  be  balanced — no  excuse  can  be 
accepted  for  failure  to  do  this. 


CHAPTER  VIII 

Liabilities  Not  Taken  Up 

To  some  extent  the  auditor  is  in  the  hands  of 
the  client  in  the  matter  of  liabilities  not  taken  up. 
He  cannot  ever  certify  positively  that  there  are 
no  liabilities  which  do  not  appear  in  the  accounts. 
There  are  certain  things,  however,  that  he  can 
do:  first,  he  can  ascertain  that  all  the  expenses 
which  accrue  regularly,  such  as  telephone,  gas, 
electric  current,  rent,  etc.,  are  taken  up;  second, 
if  the  stock  accounts  of  the  client  are  well  kept  he 
can  see  that  the  purchases  of  stock  that  have 
gone  into  the  stock  records,  and  either  appear  in 
the  inventory  or  in  the  sales,  are  duly  taken  up 
on  the  books ;  third,  he  can  examine  the  records 
and  vouchers  for  the  period  between  the  nominal 
date  of  audit  and  the  actual  date  of  the  examina- 
tion to  ascertain  whether  any  items  that  should 
have  appeared  as  purchases  or  expenses  prior  to 
the  date  of  audit  have  been  omitted  and  taken  up 
In  the  period  after  the  date  of  audit  Finally,  he 
can  obtain  from  the  officers  of  the  company  their 
certificates  to  the  effect  that  all  liabilities  known 
to  them  have  been  placed  on  the  books  before 
closing.  The  auditor  should  not  depend  upon  this 
certificate  as  taking  the  place  of  an  examination 
82 


EXHIBITS  83 

by  himself  of  such  evidence  as  can  be  obtained. 
The  certificate  is  not  a  proof — it  is  merely  a  pro- 
tection to  the  auditor  and  should  be  obtained 
only  after  the  auditor  has  used  all  possible  means 
of  discovering  for  himself  what  liabilities  were 
omitted.  If  the  auditor  is  making  a  balance- 
sheet  for  a  client  whose  accounts  have  not  been 
examined  in  the  past,  he  should  also  check  the 
amount  of  liability  indirectly  by  ascertaining  first 
the  amount  of  capital  actually  put  into  the  busi- 
ness and,  second,  the  amount  of  profit  earned. 
From  these  two  he  will  form  a  clear  idea  of  the 
amount  of  capital  and  surplus  that  should  exist. 
If  large  liabilities  have  been  omitted  this  indi- 
rect method  would  indicate  the  fact — it  would 
not,  however,  distinguish  between  an  omission  of 
liabihties  and  an  over-valuation  of  assets.  On 
finding  that  a  company  shows  a  net  worth  that 
the  original  investment  plus  normal  profits  does 
not  justify,  the  auditor  is  placed  on  his  guard  and 
should  immediately  take  steps  to  ascertain  in 
what  respect  the  assets  are  over-valued  or  the 
liabilities  omitted. 

Exhibits  (Por  the  Client) 

Exhibits  should  be  in  the  mind  of  the  auditor 
from  the  time  the  work  is  begun.  The  exhibits, 
with  the,  accompanying  report,  are  all  that  the 


84       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

client  gets  and  to  the  client  represent  the  whole 
work. 

It  is  not  sufficient  to  give  a  balance-sheet  and 
profit  and  loss  account  with  a  schedule  for  each 
item.  That  plan  is  followed  by  mechanical  and 
really  incompetent  (although  highly  trained)  ac- 
countants. Clients  have  their  books,  and  one 
might  as  well  tell  them  to  look  at  their  books  as 
give  schedules  that  amount  practically  to  a  copy 
of  the  books. 

If  the  auditor  look  over  any  prior  reports,  he 
may  get  a  clear  idea  of  what  exhibits  can  with 
advantage  be  made.  If  no  prior  reports  exist, 
it  is  well  to  look  over  the  ground,  ascertain  what 
reports  are  made  by  the  client's  staff  and  think 
over  the  question:  "What  exhibits  could  be  pre- 
pared from  these  books,  without  unreasonable 
expenditure  of  time,  that  would  give  help  to  the 
client?" 

Do  not  make  exhibits  which  are  mere  detailed 
lists  of  assets  or  liabilities  appearing  on  the  bal- 
ance-sheet. If  a  list  of  customers'  accounts  re- 
ceivable, for  instance,  is  of  value  because  the  cli- 
ent wishes  to  have  it  for  frequent  reference,  give 
it  and  note  on  it  the  overdue  and  bad  accounts. 
If  such  a  list  contains  many  bad  accounts,  give  it 
for  your  own  protection;  but  do  not  give  it 
simply  to  make  up  a  bulky  report;  do  not  give  it 
because  you  feel  bound  to  support  your  figures  on 


EXHIBITS  85 

the  balance-sheet  by  giving  details.  If  the  client 
will  not  trust  your  report  without  such  detail,  he 
should  employ  a  bookkeeper,  not  a  public  ac- 
countant. 

Constant  watching  of  the  several  items  as  they 
pass  under  your  notice  during  the  detail  checking 
will  give  you  the  knowledge  needed  to  decide 
what  should  be  reported  to  the  client. 

See  that  your  exhibits  form  a  consistent  whole. 
Your  profit  and  loss  balance  should  be  so  handled 
that  the  client  can  trace  it  to  the  surplus  account 
and  to  the  balance-sheet;  subordinate  exhibits 
should  correspond  with  the  general  profit  and 
loss  account;  the  same  matter  should  not  appear 
in  two  exhibits;  the  exhibits  should  be  compact; 
they  should  be  arranged  conveniently  for  com- 
parison of  accounts  at  varying  dates;  petty  items 
should  be  grouped;  long  exhibits,  running  over 
more  than  one  page,  should  be  avoided,  either  by 
dividing  into  sections,  or  by  grouping  items  of 
similar  character,  with  details  in  sub-schedules. 

Remember  that  exhibits  are -to  be  typed — not 
by  you  but  by  a  typewriter  who  is,  presumably, 
not  an  accountant — who  will  follow  copy  ex- 
actly— who  is  not  permitted  to  correct  your 
errors.  Your  exhibits  should  be  clearly  written, 
in  ink,  without  interlineation",  with  spaces  ar- 
ranged substantially  as  they  should  appear  in 
the  final  account. 


86       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

When  the  exhibits  relating  to  operations  arc 
finished  they  should  be  such  as  to  show  amount 
of  business  done,  by  classes,  deducting  from  all 
items  any  contra  amounts,  such  as  the  return  of 
goods  sold  or  purchased;  cost  of  merchandise 
manufactured,  including  cost  by  units  if  possible; 
cost  of  goods  sold;  gross  profit  (which  may  gen- 
erally be  described  as  profit  before  charging  sell- 
ing and  administrative  expenses)  and  classified 
statement  of  expenses. 

The  balance-sheet  should  show  the  assets  and 
liabilities — classified  in  a  few  carefully  chosen 
groups,  but  not  divided  into  a  multitude  of 
classes  between  which  the  distinction  is  imma- 
terial. In  addition  to  the  balance-sheet  there 
may  be  schedules,  not  of  all  assets  but  of  any 
assets  the  details  of  which  appear  to  be  of  much 
interest,  especially  if  large  changes  have  been 
made  during  the  period  since  last  report. 

On  all  these  exhibits  figures  showing  compara- 
tive results  for  corresponding  earlier  periods  are 
valuable;  and  for  this  reason  it  is  convenient  to 
follow  the  form  of  exhibits  used  at  prior  audits. 

If,  however,  the  forms  used  were  susceptible 
of  material  improvement  the  auditor  should 
make  the  improvement,  and  can,  with  a  little  ad- 
ditional work,  so  arrange  earlier  accounts  as  to 
obtain  corresponding  figures  for  the  amended 
form  of  accounts. 


EXHIBITS  87 

The  comparative  figures  may  take  the  form 
of  percentage  figures.  The  sales  may  be  treated 
as  the  standard  (100%)  and  the  cost  and  sev- 
eral classes  of  expense  stated  in  terms  of  their 
percentage  of  the  amount  of  sales.  In  manufac- 
turing cost  accounts  the  total  cost  of  manufac- 
ture may  be  the  standard  (100%)  and  the  items 
of  cost  percentages  of  the  whole  cost. 

In  some  cases,  where  the  product  is  uniform, 
as  In  the  case  of  malt  liquor,  positive  moving 
picture  film,  steel,  etc.,  the  cost  may  be  stated  in 
cost  per  unit  (per  barrel,  per  foot,  per  ton,  etc.). 

Always,  however,  the  general  profit  and  loss 
account  may  show  with  advantage  not  only  the 
comparative  percentage  figures  but  also  the  com- 
parative total  amounts  of  the  principal  items, 
since  percentages  throw  no  light  on  the  amount 
of  increase  or  decrease  in  business  done. 

Here,  again,  the  knowledge  gained  during  de- 
tail checking  should  have  given  the  auditor  a 
knowledge  of  the  causes  of  increases  or  decreases 
of  business,  and  It  Is  precisely  that  knowledge 
which  the  client  needs.  The  client's  own  staff 
has  also  handled  the  details,  of  course;  but  the 
auditor  Is  expected  to  bring  to  a  consideration 
of  the  details  of  the  business  a  mind  that  Is  not 
only  better  trained  than  those  of  ordinary  em- 
ployees, but  Is  equipped  with  a  knowledge  of 
what  occurs  in  many  other  enterprises. 


CHAPTER  IX 

Conduct  of  Juniors  in  Clients'  Offices 

The  junior  accountant  should  at  all  times  ap- 
preciate that  he  is  regarded  by  the  client  as  a 
representative  of  the  firm  by  which  he  is  em- 
ployed and  is  under  obligation  to  uphold  the 
dignity  and  honor  of  that  firm.  It  follows  that 
he  should  not  express  to  the  client  any  opinion 
as  to  the  work  in  hand  or  the  conduct  of  the  cli- 
ent's office  without  first  consulting  with  his  own 
senior.  Junior  accountants  may  be  approached 
from  time  to  time  by  officers  of  the  company 
seeking  information  regarding  the  progress  of 
the  work,  conditions  in  the  client's  office,  or  an 
opinion  on  accounting  or  even  on  legal  matters. 
In  such  instances  it  is  best  to  refer  the  officers  to 
the  senior  in  charge  of  the  work  unless  the  ques- 
tions are  of  a  very  elementary  character. 

The  junior  accountant  should  make  a  point  of 
arriving  at  the  client's  office  at  the  hour  ap- 
pointed for  the  opening  of  business  and  not  leave 
until  the  closing  hour.  The  regulation  time  for 
meals  should  not  be  exceeded,  except  in  special 
circumstances  and  by  permission  of  the  senior  in 
charge. 


ABUSES    DISCOVERED  89 

It  often  happens  that  both  the  accountants 
and  the  office  staff  simultaneously  require  the 
use  of  the  same  record — in  such  cases  the  ac- 
countant should  endeavor  to  interrupt  the  reg- 
ular work  of  the  office  as  little  as  he  possibly  can. 
This,  together  with  care  in  replacing  vouchers, 
canceled  cheques,  etc.,  will  be  found  to  have  a 
very  marked  Influence  upon  the  Impression 
which  the  client  will  form  of  the  staff;  and  the 
treatment  that  will  be  accorded  the  accountant 
assigned  to  the  work  will  reflect  this  impression. 

Junior  accountants  should  appreciate  that 
they  are  assigned  to  clients'  offices  for  the  pur- 
pose of  conducting  an  examination  and  not  with 
a  view  to  discussing  extraneous  matters  with  the 
employees.  We  have  known  of  cases  where 
clients  have  objected  to  paying  their  bills  in  full 
on  the  ground  that  men  assigned  to  the  work 
had  spent  a  portion  of  their  time  in  discussing 
baseball,  or  because  assistants  have  not  put  in 
the  full  number  of  hours  which  they  should  have 
done  under  arrangements  with  the  clients. 

Abuses  Discovered  in  Clients^  Offices 

The  junior  accountant  from  the  position  which 
he  holds  is  often  in  a  better  position  than  any- 
one else  to  unearth  petty  abuses.  Often  clients' 
employees  will  tell  junior  accountants  of  petty 


90       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

graft  and  other  bad  features  of  office  manage- 
ment when  they  would  hesitate  to  speak  on  the 
matter  to  a  senior.  In  such  cases  the  junior 
should  immediately  take  up  with  his  own  senior 
anything  of  this  nature  that  comes  to  his  atten- 
tion. It  is  highly  undesirable  that  it  should  be 
taken  up  with  the  client  before  it  has  had  proper 
consideration,  as  the  Information  may  be  un- 
true or  malicious,  and  actions  that  may  to  some 
employees  in  an  office  appear  improper  may  be 
justified  and  may  be  specifically  authorized  by 
the  client.  In  fact,  it  may  be  considered  a  gen- 
eral rule  that  no  report  of  anything  undesirable 
in  a  client's  office  be  made  to  the  client  until  it 
has  been  considered  by  the  senior  and  investi- 
gated so  that  the  accountant  may  not  humiliate 
himself  by  bringing  forward  unfounded  com- 
plaints. 

The  remarks  above,  covering  the  method  of 
dealing  with  bad  conditions  in  the  offices  of 
clients,  apply  also  to  what  may  appear  to  the 
junior  to  be  defects  in  the  accounting  system  or 
forms.  It  frequently  happens  that  a  junior  does 
not  thoroughly  understand  why  certain  accounts 
are  kept  in  certain  ways — indeed  it  is  not  alto- 
gether unknown  that  seniors  have  been  ignorant 
of  the  reason  for  keeping  certain  accounts — and 
when  accounts  and  forms  have  been  introduced 
by  the  best  minds  of  an  accounting  firm,  it  is 


ABUSES   DISCOVERED  9 1 

highly  undesirable  that  a  junior  who  does  not 
fully  understand  them,  and  perhaps  does  not 
know  who  introduced  them,  should  volunteer 
criticisms  to  the  client. 

At  the  same  time  a  junior  should  never  fail  to 
bring  to  the  attention  of  his  senior  anything  of 
any  kind  connected  with  his  work  which  may  ap- 
pear to  him  to  be  unsatisfactory,  and  if  he  has  a 
strong  impression  that  improvements  are  in 
order  and  his  senior  does  not  agree  with  him,  he 
should  leave  a  record  of  his  opinion  among  the 
working  papers  to  be  referred  to  if  the  matter 
ever  arises  for  discussion  again. 


CHAPTER  X 

Checking  the  Correctness  of  the  Assis- 
tant's Own  Work 

By  far  the  greatest  safeguard  that  the  assis- 
tant can  use  in  checking  the  correctness  of  his 
own  work  is  to  balance  his  own  figures.  Thus, 
if  analyses  of  receipts  and  expenditures  are  to  be 
made,  the  cash  balance  at  the  beginning  and  end, 
together  with  the  total  of  receipts  and  expendi- 
tures, should  be  made  to  balance.  If  statements 
are  made  of  cost  per  unit  for  the  items  entering 
into  cost  of  goods,  it  should  be  ascertained  that 
the  total  of  the  items  agrees  with  the  total  cost 
per  unit. 

If  the  accountant  states,  for  instance,  that  a 
loss  of  $50,000  has  been  incurred  for  certain 
given  reasons  and  states  also  the  amount  per 
unit  lost  for  each  of  these  reasons,  he  should  as- 
certain that  the  total  of  the  losses  per  unit  which 
he  gives,  multiplied  by  the  total  number  of  units, 
agrees  substantially  with  the  $50,000  in  question. 

Sometimes  it  is  necessary  that  figures  be  sub- 
mitted which  cannot  be  balanced  in  this  way. 
When  this  is  done,  the  assistant  is  on  dan- 
gerous ground  and  should  never,  in  any  circum- 
stances, submit  such  figures  without  having  them 
92 


UTILIZING   WAITING  TIME  93 

carefully  checked  by  another  person.  If  he  is 
instructed  to  submit  figures  in  such  circumstances 
that  he  cannot  obtain  a  check  by  another,  he 
should,  for  his  own  protection,  note  the  fact  on 
the  working  papers. 

It  is  a  general  rule  with  accounting  firms  that 
errors  are  excusable,  but  that  failure  to  obtain 
such  checking  as  will  detect  the  errors  before 
they  get  into  the  accounts  is  not  excusable. 

Utilizing  Waiting  Time 

If  your  firm  is  considerate  enough  to  keep 
you  under  pay  while  waiting,  do  not  repay  it  by 
spending  the  waiting  time  in  loud  conversation 
or  conduct  not  calculated  to  preserve  the  de- 
corum of  the  office.  Good  firms  have  accounting 
libraries,  to  which  you  will  have  access  if  you 
care  to  learn  something.  For  your  own  sake, 
as  well  as  for  the  sake  of  the  firm  by  which  you 
are  employed,  spend  at  least  a  part  of  your  wait- 
ing time  in  reading  such  matter  as  the  library 
affords  and  such  as  will  help  you  in  your  general 
work. 

Systematic  Check-Marks 

Although  there  is  a  certain  amount  of  uni- 
formity in  the  practice  of  most  auditing  con- 
cerns, the  differences  in  practice  are  sufficient  to 


94       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

interfere  seriously  with  work  if  all  the  em- 
ployees of  any  given  accounting  firm  do  not  fol- 
low exactly  one  plan  of  marking.  It  is  especially 
necessary  where  periodical  audits  are  made  that 
the  marks  should  be  such  as  to  indicate  without 
any  doubt  to  each  assistant  what  work  has  been 
done  by  his  predecessor.  The  assistant  must  not 
think  that  the  strictest  adherence  to  the  pre- 
scribed system  of  marks  is  unnecessary,  nor 
should  he  think  that  any  system  which  may  ap- 
peal to  him  as  being  better  can  be  adopted  with- 
out serious  injury.  The  perfection  of  the  system 
is  not  nearly  so  important  as  uniformity;  and  the 
assistant  should  make  up  his  mind  from  the  be- 
ginning to  follow  to  the  last  detail  the  scheme  of 
marking  adopted  by  the  office  in  which  he  works. 
When  this  is  done  the  work  can  be  dropped  at 
any  point  by  one  assistant  and  taken  up  by  the 
next  without  misunderstanding  or  loss  of  time. 

The  scheme  of  marks  in  use  in  one  office  is  set 
forth  fully  in  an  exhibit  attached  hereto.  It  will 
be  understood  from  examination  of  this  exhibit 
that  each  assistant  uses  from  time  to  time  a  mark 
which  is  his  own  personal  distinguishing  mark. 
Where  the  personal  check-mark  is  used,  it  is  in- 
tended to  enable  either  the  senior  in  charge  or 
another  assistant  to  determine  exactly  who  did 
the  work,  and  the  assistant  should  endeavor  to 
devise  some  neat  and  quickly  made  mark  that 


SYSTEMATIC    CHECK-MARKS  95 

cannot  be  mistaken  for  a  figure,  and  clearly  dis- 
tinguishes itself  from  the  marks  of  other  assis- 
tants. This  seems  to  be  a  matter  of  some  diffi- 
culty as  the  size  of  the  mark  is  small  and  the 
number  of  assistants  very  great,  but  a  surpris- 
ingly large  variety  of  marks  may  be  devised  with 
a  little  thought. 

In  the  examples  on  the  following  page  the 
dagger  represents  the  individual  check-mark  and 
tells  who  checked  the  posting  or  the  footing. 
The  letter  C  on  the  cash  payments  sheet  shows 
that  the  canceled  cheque  has  been  inspected.  The 
V  over  the  item  in  the  voucher  record  shows 
that  the  purchase  has  been  vouched  with  the 
original  invoice  of  the  supplier. 


g6       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 


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CHAPTER  XI 
Care  of  Papers 

The  junior  accountant  should  remember  that 
he  will  be  held  responsible  for  the  safe-keeping 
of  the  working  papers  in  his  charge.  It  is  not 
only  necessary  that  they  should  be  legible,  or- 
derly and  complete,  but  It  Is  also  necessary  that 
they  should  be  kept  strictly  In  the  care  of  the 
auditors,  especially  during  the  period  of  their 
preparation. 

It  has  happened  repeatedly  within  the  experi- 
ence of  every  large  firm  that  junior  accountants 
have  left  their  papers  open  to  the  inspection  of 
others  while  the  auditors  are  away. 

The  auditor  should  not  forget  that  he  is  in  a 
confidential  capacity;  that  many  facts  and  docu- 
ments are  given  to  him  that  are  not  accessible  to 
all  the  employees  of  the  client  for  whom  he  may 
be  working;  that  he  himself  should  note  his  own 
conclusions  in  cases  where  It  is  highly  undesir- 
able for  the  employees  of  the  client  to  know 
what  those  conclusions  are;  that  he  may  note  on 
his  papers  presence  or  absence  of  vouchers,  etc., 
crossing  them  out  from  time  to  time  as  they  may 
be  found;  and  that  If  he  leaves  his  papers  open 
to  the  inspection  of  others  during  his  absence 
97 


98       DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

any  interested  employee  can  cross  out  items  of 
missing  vouchers,  etc.,  which  may  cover  irregu- 
larities. 

Much  of  the  consideration  extended  by  clients 
to  auditors  is  based  on  the  knowledge  that  the 
auditors  are  trusted  with  confidential  informa- 
tion and  the  auditors  should  not  weaken  that  re- 
spect by  letting  their  working  papers  get  out  of 
their  care.  It  is,  however,  permissible  in  many 
cases  for  the  auditor,  if  he  can  lock  his  papers  in 
his  audit  bag,  to  leave  them  for  safe-keeping  in 
the  client's  safe;  but  in  no  case  should  they  be 
left  in  the  care  of  any  employee  or  officer  unless 
they  are  securely  locked  up. 

The  foregoing  caution  is  not  based  to  any  ex- 
tent on  theoretical  considerations  or  imaginary 
dangers.  Difficulties  have  arisen  on  every  one 
of  the  above  points  within  the  experience  of  the 
writers  and  some  of  them  have  caused  irritation 
on  the  part  of  the  clients  and  humiliation  to  the 
men  doing  the  work. 

The  auditor,  however,  should  be  careful  to 
cause  no  unnecessary  unpleasantness  and  should 
not  attempt  to  give  an  air  of  mystery  to  his 
work.  It  is  a  matter  for  common  sense.  Keep 
your  papers  locked  up  and  do  not  show  any  more 
of  them  than  necessary. 


CARE    OF    CLIENTS     BOOKS  99 


Care  of  Clients'  Books  and  Records 

Most  bookkeepers  do  and  all  should  take 
some  pride  in  the  physical  condition  of  their 
books  and  records.  They  live  with  them.  Some 
of  their  books  remain  in  daily  use  for  years.  De- 
facements of  such  books  constitute  a  daily  annoy- 
ance over  the  period  of  use  and  an  unsavory  re- 
membrance forever. 

The  auditor,  however,  sees  them  infrequently, 
and  does  not  suffer  very  much  discomfort  of 
mind  from  the  fact  that  blots,  thumb-marks,  etc., 
exist.  This  must  not  lead  the  auditor  to  take 
any  less  care  of  the  condition  of  the  books  than 
is  taken  by  the  ordinary  custodian  thereof.  De- 
facement of  a  client's  books  is  a  grave  offense, 
and  indicates  in  the  auditor  lack  of  experience 
and  serious  carelessness  of  the  interests  of  the 
chent. 

Auditors  usually  make  their  checkmarks  with 
red  ink.  Heavy  marks  with  thick  dirty  ink,  not 
cleared  with  blotting  paper,  cause  marks  to  ap- 
pear on  the  opposite  page  and  smear  upon  touch 
with  a  moist  hand  even  when  treated  with  blot- 
ting paper.  Use  a  hard  fine  pen,  clean  thin  ink, 
and  mark  as  lightly  as  possible,  without  shading. 
Such  marks  do  not  smear  or  blot  even  if  not 
thoroughly  dried  with  blotting  paper. 


lOO    DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

Speed  in  finding  the  pages  of  the  books  is 
necessary,  but  it  must  not  be  attained  by  using 
the  fingers  as  shown  below: 


This  results  in  dirty  thumb-marked  corners  of 
pages  and  in  a  permanent  and  most  unsightly 
"hump"  in  the  book  as  a  whole.     In  almost  all 


CARE  OF  CLIENrS  COOKS       lOI 

clients'  offices  offenders  In  this  respect  are  re- 
garded as  clumsy,  dirty,  offensive  persons.  If  the 
culprit  be  the  auditor  he  will  surely  earn  for  him- 
self a  reputation  for  incompetence  and  untidi- 
ness. 

Vouchers,  also,  should  be  cared  for  quite  as 
well  by  the  auditor  as  they  arc  by  the  clients. 
Vouchers  often  are  folded,  sometimes  several 
sheets  being  folded  together.  The  auditor  must 
open  them  for  examination.  Let  him  fold  them 
again  with  the  docket  outside,  as  neatly  as  when 
taken  from  the  files,  and  afterward  replace  them 
in  the  filing  cases  decently  and  in  order. 

Never  take  away,  even  temporarily,  any  docu- 
ments or  vouchers  belonging  to  the  client.  If  the 
client  should  furnish  copies  of  documents  for  the 
files  of  the  auditor  see  that  the  client  marks  them 
"for  the  auditor."  Where  this  is  not  done  it  is 
not  unusual  for  careless  clients  to  accuse  auditors 
of  taking  away  papers  that  should  not  have  been 
taken.  Generally  it  is  most  satisfactory  for  the 
auditor  to  make  his  own  copies  of  records  when 
they  are  needed. 

The  auditor  often  has  to  criticise  the  filing  of 
papers,  neatness  of  books  and  accessibility  of 
records.  His  criticisms  will  be  received  more 
favorably  if  his  own  work  has  tended  to  an  im- 
provement rather  than  to  a  deterioration  of  con- 
ditions. 


I02    btjtiES' OF  the:  JUNIOR  ACCOUNTANT 

Another  kind  of  defacement,  especially  to  the 
cashbook  and  voucher  register,  results  from  the 
careless  use  of  the  auditor's  rubber  stamp  and 
pad.  If  the  pad  be  freely  inked  the  cheques  or 
vouchers  when  freshly  stamped  will  print  back 
upon  any  paper  surface  with  which  they  are  in 
contact.  Hence,  it  is  necessary  to  avoid  closing 
any  book  leaving  stamped  cheques  or  vouchers 
temporarily  between  the  leaves.  When  errors 
are  found  the  auditor  frequently  is  asked  to  give 
the  desired  form  of  correcting  entry.  Do  not  do 
this  In  such  a  hurry  as  to  risk  the  necessity  of 
further  correction.  See  that  you  understand  the 
case  fully  before  dictating  a  correction.  Any 
credit  you  might  receive  for  quick  thinking  would 
be  a  poor  return  for  the  risk  you  run  in  hastily 
formulating  corrections. 


CHAPTER  XII 
Reports — Matter  to  Be  Included 

Reports  are  annexed  to  statements  of  account 
for  the  purpose  of  supplementing  the  information 
contained  in  the  statements  and  pointing  out  to 
the  client  the  deductions  properly  to  be  drawn 
from  the  figures. 

The  junior  accountant  may  not  be  called  upon 
to  write  reports  for  submission  to  clients,  but  he 
probably  will  be  required  to  submit  to  his  senior 
reports  on  the  work  done,  and  the  same  qualities 
that  are  required  In  a  report  to  a  client  will  be 
desirable  in  a  report  to  the  senior  accountant — 
indeed,  some  or  all  of  the  matter  submitted  by  the 
junior  might  be  incorporated  in  the  report  to 
the  client. 

In  preceding  pages  It  repeatedly  has  been  urged 
that  the  auditor  in  checking  details  should  try  to 
understand  the  actual  business  transactions  repre- 
sented by  the  entries.  If  this  has  been  done  the 
end  of  the  detail  work  should  find  him  equipped 
to  comment  intelligently  upon  the  operations. 
What  could  be  more  humiliating  at  this  point 
than  to  make  any  comment  which  showed  that  one 
did  not  understand  the  work  he  had  audited? 

If  the  auditor  understands  thoroughly  the 
operations  of  the  client's  business,  but  can  throw 
no  useful  light  thereon,  he  should  write  briefly 
or  not  at  all. 

103 


I04    DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

The  report  should  be  arranged  on  such  a  plan 
as  to  bring  into  relief  those  matters  in  which  the 
client  will  be  interested.  Good  and  valuable  com- 
ment, buried  in  a  mass  of  perfunctory  remarks, 
is  likely  to  be  overlooked.  Clients  have  not  time 
to  hunt  for  the  items  that  interest  them.  The 
accountant  should  so  report  that  such  items  stand 
out  unmistakably.  The  remarks  as  to  useless 
bulky  exhibits  may  well  be  considered  in  connec- 
tion with  reports.  It  is  useless,  and  exasperating 
to  clients,  to  comment  at  length  and  without  point 
on  each  item  of  the  balance-sheet  or  other  ac- 
count. The  client  does  not,  like  a  newspaper, 
pay  by  the  column. 

Your  judgment  of  what  would  be  useful  to  a 
client  is  likely  to  be  the  factor  that  finally  decides 
your  standing  in  the  profession.  You  cannot  too 
soon  cultivate  that  judgment. 

First  consider  if  there  are  any  features  of  the 
business — such  as  variations  of  percentages  of 
gross  profit,  expenses,  etc. — that  the  client  should 
have,  but  has  not.  Then  consider  whether  any 
statistical  or  other  information  which  you  can 
properly  use  would  shed  any  light  on  the  efficiency 
of  the  business  as  compared  with  average  results 
outside.  Ascertain  if  possible  if  there  are  leaks — 
if  the  client  can  be  helped  by  information  (not 
already  in  his  possession)  as  to  the  profit  on  sepa- 
rate branches  of  his  business.  Most  important, 
perhaps,  of  all  these  matters  is  an  inquiry  into  the 
correctness  of  the  information  which  the  staff  of 


REPORTS  105 

the   client   is  preparing  and  submitting  to   the 
officers  between  audit  periods. 

Remember  that  though  you  may  have  studied 
commercial  law  you  report  as  an  accountant — 
that  though  you  may  be  an  expert  plumber  you 
must  not  therefore  pass  upon  the  plumbing  ar- 
rangements of  the  factory  In  which  you  work. 
The  report  will  be  rendered  and  signed  not  by  you 
but  by  the  head  of  your  firm.  Probably  he  is  not 
even  an  amateur  plumber  and  will  refuse  to  deal 
with  other  than  accounting  matters. 

Notwithstanding  what  is  said  in  the  last  para- 
graph the  accountant  will  find  that  any  knowledge 
of  law  or  of  trade  or  of  science  or  art  will  help 
him  as  accountant  to  find  incorrect  accounting  and 
to  instal  correct  methods. 

Finally  the  auditor  must  guard  against  rash 
statements  or  loose  generalizations.  He  must  be 
prepared  to  back  up  every  statement  made  in  his 
report  by  figures  contained  in  his  working  papers. 
Nothing  should  be  given  as  the  opinion  of  the 
auditor  which  is  based  on  impressions,  hearsay 
or  even  on  actual  evidence  if  such  evidence  could 
not,  in  case  of  need,  be  produced  in  support  of 
the  opinion  expressed. 

When  the  report  is  finished,  if  time  permits, 
lay  it  aside  for  a  day,  then  read  it  over,  noting 
whether  it  makes  on  your  mind  the  impression 
that  you  wished  it  to  make  on  that  of  the  client. 

When  your  senior,  or  the  head  of  your  firm, 
has  finally  amended  and  approved  the  report  look 


I06    DUTIES  OF  THE  JUNIOR  ACCOUNTANT 

for  the  changes  made  In  your  own  draft.  These 
changes  presumably  demonstrate  your  most  glar- 
ing deficiencies.  Do  not  resent  amendments — no 
doubt  your  seniors  know  best  what  should  appear 
in  a  report. 

Reports — The  Style 

A  "literary"  style  is  not  necessary.  An  elabor- 
ately ornate  style  is  most  offensive.  Colloquial- 
isms are  forbidden.  Solid  and  correct  English  is 
essential. 

Perhaps  the  best  idea  of  the  style  to  be  aimed 
at  may  be  gathered  from  a  consideration  of  the 
impression  that  should  be  made  on  the  client. 
The  accountant  should  appear  to  the  client  as  an 
intelligent,  educated,  trained  man,  utterly  dispas- 
sionate and  disinterested,  conservative,  able  to  ex- 
press clearly  his  opinions,  unshakable  in  his  inten- 
tion to  speak  the  truth  as  he  sees  it,  and  not  par- 
ticularly anxious  to  please  anyone  at  the  expense 
of  giving  prominence  to  selected  facts. 

Lack  of  restraint  of  expression  seems  to  be  the 
most  common  fault  In  the  reports  of  well  edu- 
cated beginners.  Prolixity  and  vagueness  are 
also  common  with  this  class  of  writers.  Less  well 
educated  auditors,  recruited  from  business  offices, 
are  more  often  guilty  of  colloquial  expressions, 
slang,  bad  construction  of  sentences  and  failure 
to  express  adequately  the  conceptions,  often  valu- 
able, that  they  have  formed. 

Do  not  show  enthusiasm  or  pessimism  or  pre- 


REPORTS  107 

judice  of  any  kind.  Try  to  adopt,  and  to  show 
by  your  report  that  you  have  adopted,  the  mental 
attitude  of  an  analyst  valuing  a  specimen  of 
mineral. 

Use  short  words  and  not  many  of  them. 
Avoid  both  solemnity  and  flippancy.  "Business 
English,"  which  often  means  business  slang,  is 
not  to  be  used.  You  are  supposed  to  follow  a 
dignified  profession. 


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